Finance Monthly October 2019 Edition

18 www.finance-monthly.com FINANCE & BUSINESS - DILIGENCE Familiar challenges, more resilience With heavy pressure to do deals, the global private equity market saw another rise in investment value last year. Increasing asset prices and competition continued to reduce deal count – the number of individual transactions in 2018 fell 13% versus 2017 to 2,936 globally. However, the total buyout value jumped 10% to over US$500 bn, marking the strongest five-year run in the industry’s history. 2018 was indeed a notable year for most GPs because of the resilience and strength in the current investment cycle, albeit with levels of instability. Since 2014, the market has seen higher annual deal values than in previous years, except for 2006 and 2007. Throughout this time, the PE industry has also benefitted from an unexpected wave of investor interest, low-interest rates and, mostly in the US and Europe, steady growth. Investing in diligence Yet PE executives are currently questioning how long the good times can last. While GDP growth in the US remains strong, Brexit uncertainties, global trade tensions and volatile markets are all fuelling worries that the cycle may soon end. For PE firms, the main goal is to navigate the next economic downturn and profit from it when The global private equity (PE) market has been remarkably buoyant over the last five years. It continued to raise capital, conduct deals and find exits at a significant pace. Limited partners (LPs) remain bullish and continue to bring fresh capital to market. Keeping the momentum going has never been easy, however. Historically, heavy competition pushes deal multiples to new highs, while the growing fears of an impending recession affect decision- making ranging from conducting diligence to exit planning. For general partners (GPs), investing huge amounts of capital now comes with heightened risks. They are paying extra costs and looking to capture value that may not materialise post-close. To address this, Rosanna Woods, UK Managing Director at Drooms, suggests that the most effective GPs are scaling up their strategies by investing in diligence. GENERAL PARTNERS MUST SHARPEN DILIGENCE TO SURVIVE A POSSIBLE DOWNTURN Rosanna Woods, Managing Director UK - Drooms