Privately owned companies and PE have actually done well over the past two and a half years
Martin De Benito Gellner is HBI’s Lead Analyst. In this week’s blog he explores themes from IPEM’s conference in Paris.
This week I attended the conference of HBI’s sister company, IPEM, in Paris. The event is a meeting place for private equity GPs and LPs, and featured many interesting panel discussions on the current state of the industry.
One theme that struck me from these discussions was how, despite the dearth of deal activity and consequent liquidity problems for PE during the inflationary and elevated interest rate environment of the past two and half years, private markets and private companies have actually continued to perform quite well, especially when compared to other parts of the economy.
Whilst stock prices of listed companies were for the most part on a downward trajectory throughout 2022, multiples for the few private market transactions which were still taking place generally held up.
According Mark Benedetti, Executive President, Chairman of the Executive Committee and Operations Committee, Co-Head of Secondaries & Primaries, Co-Head of PE firm Ardian US, average EBITDA growth for PE owned companies was in the mid teens throughout the past two and half years, and average valuation growth has been around 2–3%.
Nicholas Brooks, Head of Economic and Investment Research at Intermediate Capital Group, another PE firm, suggested a couple of reasons why PE-owned companies have done well.
One is that corporates in general have been able to pass on the rise in their input costs to consumers — although (especially lower income) consumers have borne the brunt of this.
Another is that PE tends to focus more on services, and usually on ones that are non-cyclical and recession-proof (such as healthcare!).
Brooks said that where there have been difficulties, they have tended to be more company-specific.
However, he also cautioned that there are many risks ahead, including: the potential that the recent rise in US unemployment becomes self-reinforcing; sticky services/wage growth; increasingly unsustainable government debts which could cause a spike in bond yields; a US-precipitated global trade war (especially if Trump wins the upcoming US election); escalation of the Middle East crisis (which could drive sustained oil price rise); a war between China and Taiwan; and, last but by no means least, the many unknown unknowns!
We would welcome your thoughts on this story. Email your views to Martin De Benito Gellner or call 0207 183 3779.
