A new Deloitte survey found that three out of four M&A professionals expect deal activity to continue rebounding into 2017. But this optimism comes with a caveat for private equity firms: the pressure is on to strike good deals.
That’s partly because corporate strategics have the benefit of sitting on the sidelines without having to answer to impatient stakeholders, partly because money continues flowing into the sector at such a rate that we’re calling it private equity’s greatest test yet to come, and partly because investors still expect private equity shops to deliver outsized returns.
In fact, a Coller Capital LP survey found that 77 percent of investors plan to make US mid-market funds their main focus in 2017; and about the same expect private equity bets to deliver 11 percent annual returns in the medium-term. Yet that same survey found 64 percent of investors fear “too much money [is] pursuing too few attractive opportunities”. So investors seem to be aware of their own herd mentality, but trust the private equity sector enough to continue delivering satisfying returns during this anticipated M&A uptick.
Can private equity deliver? That depends on a number of factors, but private equity firms must fully leverage their core strengths of relationship building and due diligence if they want to win the best deals. Not every firm accomplishes this. Or at least isn’t accomplishing this to a sufficient enough degree. Below, we list three of those under-leveraged deal strategies.