Survey conducted with the support of 14 PE Associations
IPEM Knowledge Partner
IPEM’s fifth annual Private Equity survey acts as a litmus test for the industry, and here European GPs give their views on the road ahead. In total, 188 interviews were completed by the CSA Institute on behalf of IPEM from 28th November 2022 to 2nd January 2023 with the support of PE’s 14 national associations in Europe. The data was analysed in collaboration with AlixPartners, IPEM’s principal knowledge partner.
The economic situation is the number one concern of European GPs in 2023. With rising interest rates, rising inflation and the slowdown in growth, 79% of them expect an economic correction in 2023 (they were only 21% in 2022).
78% of the European GPs don’t see 2023 as a good year for exit or fundraising (72%). Most of them still see it as a good year for portfolio management / improvement (81%) and deal making / capital deployment (78%).
77% of respondents consider that the market will be LP-led in 2023. A tough exit environment will of course impact LPs’ ability to be more active, tempering expectations of distribution from GPs that can be redeployed in the market. Nonetheless, 2/3 of European GPs expect to raise new funds and more than half expect to raise more capital than in 2022.
European GPs anticipate a decrease of investments from most categories of institutional investors, except for Sovereign Wealth Fund and Government Agencies. “Retail investor” pockets are anticipated to grow faster and have become an important focus.
Hands-on value creation will be key in 2023. Top 3 levers to generate value for GPs are operational efficiency (62%), organic growth (49%) and organizational efficiency (48%).
Less than 50% of European GPs measure their CO2 emission… But many plan to. The industry is showing strong conviction around climate initiatives. Many projects & initiatives are currently being explored… To be continued.
“I have always been amazed by the positivity and optimism of the PE Industry, which we see again for 2023, despite headwinds and a rapidly changing macro paradigm. This provides proof of the self-confidence, grit, and resilience that you simply wouldn’t find in many other industries.
If I have a concern, it is whether this drive and enthusiasm will be shared by LPs. The usual suspects (pensions, insurance companies) are seen as allocating less to the asset class and struggling with less distribution and adverse J-curve effects – they have been instrumental in fueling PE’s stellar growth over the last cycle. In addition, while much is expected from pockets of capital that are relatively new – especially retail – this represents a big test and I sincerely hope it doesn’t prove to be a mirage.
There’s a sense that PE is coming back to its operational playbook – and that’s something the small and mid-cap segment looks better positioned to realise. A very high concentration of funds has been raised by the largest fund managers in recent years, yet these mega fund platforms are now among the most concerned or cautious, while smaller mid-market players seem to be showing strong resilience. This could suggest that a time of some decoupling may be ahead, and it will be interesting to see where the market heads in this respect and the impact on the GP landscape.
Finally, the high priority assigned by European GPs to climate considerations is a very significant trend – a sense of urgency seems to be shared across the industry. We can imagine soon climate finance becoming a standalone asset class, bringing fresh perspectives to the industry. Much remains to be done, but it is yet another example of industry positivity that will continue to shine through despite the many challenges ahead.”
Partner & Managing Director and Private Equity expert, AlixPartners
“In a highly disrupted market where credit conditions are clearly difficult and economic conditions uncertain, I do expect reduced M&A activity globally in 2023, although there will still be opportunities for good deals to be done, though it may take some time for a revised balance to be established between IRR expectations, leverage ratios and conditions, and sellers’ values expectations.
With exit options appearing dampened and multiples likely to be muted, we are increasingly seeing operating partners battling with inflation, labour, and supply chain challenges; working to build greater agility and create value within their portcos by identifying the levers they can pull to reduce break-even points without inhibiting performance or a return to growth and, most importantly, revising forecasts to key scenarios, managing cash carefully in light of continued uncertainty.
Leadership at this time requires resilience, agility, and adaptability. The most effective leaders will champion change and inspire and motivate others to high performance, driving this with empathy and emotional intelligence (EQ). Clarity of communication will also be essential for leading during a period of rapidly escalating disruption.
There are so many dimensions to ESG and climate action, and I am convinced that Private Equity has a strong role to play in this transformation. Globally, economically, and societally it is a factor that compels companies to change. Viewed statically, the investment required could be seen as simply a greater cost burden, or even an inflation driver, but it’s vital that ESG is viewed as part of a more dynamic system, where the steps made to transform now will improve long-term trajectory; company image; the ability to access funding; hiring potential; talent retention; and, ultimately, exit values.”
AlixPartners is a results-driven global consulting firm that specializes in helping businesses respond quickly and decisively to their most critical challenges—from urgent performance improvement to complex restructuring, from risk mitigation to accelerated transformation. These are the moments when everything is on the line —a sudden shift in the market, an unexpected performance decline, a time sensitive deal, a fork-in-the-road decision. We stand shoulder to shoulder with our clients until the job is done, and only measure our success in terms of the results we deliver. We partner with you to make the right decisions and take the right actions. And we are right by your side.
When it really matters.
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