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An international survey launched today by global business performance consultancy McKinney Rogers, called Private Equity – Perception and Reality was conducted online with senior executives in the USA, Europe, Africa and Asia Pacific.

Credit squeeze and economic uncertainty 

While an encouraging three quarters (70 per cent) of respondents recognise the beneficial impact of Private Equity (PE) investment, they all agree that the market will not grow at all over the next 12 months and that it will only ‘grow a little’ for two years after that.

Although the credit squeeze (71 per cent) and economic uncertainty (68 per cent) were cited by most respondents as the major cause of the private equity slowdown, those from Africa and Asia Pacific see this as having significantly less of an impact than those in the USA and Europe.

This suggests that PE firms could conclude a greater proportion of deals in Africa and AP, raising the prospect of even less business investment in the USA and Europe where the credit squeeze has already hit hardest.

Lack of available cash 

Questioned on the magnitude of the problems facing organisations that want to use private equity as a means of funding their business, nearly 80 per cent point to a lack of available cash – especially within Europe – while all regions agree that PE firms will now be very selective about the deals they do.

American respondents think that employee resistance to PE funding is quite a large problem, compared to the other regions.

Potential problems with trade unions are also a consideration, cited by more than one-third (37 per cent), with Africa in the lead.

Richard Watts, regional partner Europe for McKinney Rogers, said that the results of this research highlighted that without significant growth potential to rely on, the emphasis of PE firms should now be on managing and running the companies and assets that have already been acquired.

This switch in emphasis from transaction to management skills is at the heart of the changed environment that private equity funds now face, and success in making this transition is likely to define the industry’s winners going forward.

Clarity of vision 

Watts explained that a significant challenge for any acquirer of a business lies in understanding how to get to grips with and where appropriate, change the leadership, strategy and business culture of the company.

He added that it is vital that teams have clarity of vision and are set guidelines and performance expectations, as well as tangible reasons for working to this standard.

By understanding what is expected of them while being given the freedom to execute missions in the way they best see fit, a sense of ownership is developed, leading to an increase in motivation and performance.

“Over half (53 per cent) of respondents highlight the worth of management expertise that PE firms can bring to companies and it is these skills that PE firms need to build on now to gain a competitive edge,” Watts concluded.

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Related links

• McKinney Rogers