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Why are ‘Express Auctions’ emerging within the Private Equity Market?

The Private Equity sector has seen a surge of growth in recent years, spurred not least by the addition of new, market domains including direct investment, co-investment, leveraged buyouts and separate accounts to its initial focus of debt-fuelled buyouts, all “newly popular vehicles adding to private equity’s momentum”[1].

Consequently, fundraising within Private Equity is climbing rapidly, with firms raising in excess of £71 billion during the first quarter of 2017. Indeed , at Carlyle Group’s third-quarter earnings call of last year, David Rubenstein, the Co-Chief Executive of what has been termed “one of the world’s most successful investment firms”[2], announced that they are aiming “to raise $100 billion over the next four years”, with his statement allegedly leaving “those who don’t know private equity sceptical, but not those who do”[3]. Further still, this global figure could be set to rise to £80 billion as more figures are published, solidifying this period as “the strongest first quarter for fundraising since the start of 2008”[4].

With increased funds, comes an increased desire to apply capital to a worthy asset, with the hope of returned investment. However, at the same time, the amount of fundraising remaining un-invested within the Private Equity market is rising; this phenomena has been termed ‘dry powder’, and “has soared as managers have not been able to find the right assets to buy but are under pressure to invest money raised”[5]. The growing situation has been accurately summarised by Adrian Maguire, leader of the Private Equity team at law-firm Freshfields Bruckhaus Deringer, in stating “There is too much money chasing too few assets”[6]. The steady decline in both value and volume of investment is not least resultant from the way by which, recently, “competition in the industry increased and the number of quality targets decreased”[7].

Such an increase in equally-hungry buyout firms is proving the issues arising from ‘express auctions’ more complex still. With competition becoming increasingly concentrated, “private equity firms are tracking businesses they want to buy for longer, bankers are being asked to sound out buyers at an ever-earlier stage and, once sale processes kick off, only a select group of the most serious bidders are invited to the table”[8].

Hence, the crux of this issue is raised – why are ‘Express Auctions’ emerging within Private Equity? The simplest answer is that fund managers wish to see their fundraising applied quicker, given the limited value that exists within the current market, and thus to eliminate the increased, build-up of ‘dry powder’. Indeed, as previously referenced, the speed at which deal-making is being made is being driven by “easy financing and new rivals entering the space, including sovereign wealth funds and rich individuals, taking valuations to near those being achieved before the 2008 financial crisis”[9].

It rests with the Industry professionals, bearing the skills required for effectively sourcing, managing and creating investment from these express deals, to successfully deliver in creating wealth. Executive Search consultancies such as IRG[10], with an established network in Private Equity, and proven experience and expertise in completing retained mandates for successful Clients within this sector, are locating and securing the top-tier professionals necessary to do so. IRG Executive Search recruit investment and operating professionals at every level, from Analysts to Partners, covering a broad range of geographies and industry verticals. Over the past decade they have conducted more than 200 assignments for private equity firms and their portfolio companies.

Express Auctions are becoming ever more prevalent in Private Equity, so finding success from this new development and evolution within the market is essential for funds and buyout firms to get successful deals at the right price, thus generating great returns. It is imperative Private Equity firms use insight from past deals to yield great returns in the future.  If carried out correctly, it is these companies that will have the edge in raising capital.

Daniel Clark, Director