Welcome to a new, humbler private-equity industry

As the dust settles in the wake of nationwide protests and a pandemic-induced recession, a new reality is emerging for the world of private equity: a more humble, empathetic outlook on the way we interact with capital and each other. As industries large and small seek to figure out what the future holds, one thing is certain – the private equity industry has entered a new era, where investor returns are still paramount while exercising a more thoughtful approach towards the people it interacts with. In this article, we’ll explore the strategies and values that are at the core of this new, more socially conscious private equity business model.

1. A Shift to Humility: Welcome to the New Private Equity Industry

The winds of change are blowing through the private equity industry. After some years of high-profile, large-scale practices, an air of humility is slowly eroding the portrait of the industry’s actors. Where previously those involved in private equity were driven by maximizing returns, there is now a focus on ensuring a lasting, positive impact on the companies and communities that the firms are investing in.

This shift is visible in the new practices of equity firms, which increasingly feature:

  • Multi-stakeholder approach: A focus on working alongside local companies, communities, and regulatory bodies to ensure investments are made in ethical, responsible ways.
  • Collaborative relationships: Managerial teams not only work together to identify opportunities and create strategies, but frequently maintain a presence in the local community to stay informed, adaptive, and involved.
  • Evolving standards: Private equity industry standards are becoming increasingly rigorous. Practices are being altered to ensure compliance with International Financial Reporting Standards, while numerous industry conferences and summits are held each year in order to keep abreast with the shifting landscape.

The focus on corporate social responsibility, sustainability and ethical commercial conduct are becoming integral parts of private equity practice, making these concepts more honest and realistic. This shift has been a long time in the making, and is sure to bring positive outcomes to all stakeholders involved.

2. The Power of Smaller Deals: Unlocking Value for Businesses

In today’s rapidly evolving world, companies are increasingly faced with opportunities to make smaller deals that can quickly add value and make an impact. While larger mergers and acquisitions may appear to be the go-to choice for many, smaller deals can provide a powerful alternative that can deliver necessary results without requiring massive investment or time.

Here’s why smaller deals can be beneficial to businesses:

  • Fewer resources are needed for smaller deals, making them more financially sustainable
  • They require less due diligence, thereby reducing the chances of delays or disruption
  • Smaller deals can often facilitate faster progress
  • Smaller deals provide an avenue to access niche markets and specialized talent while still being cost-effective

By embracing smaller deals, businesses can unlock a wealth of value that can have a long-lasting effect and drive growth. Smaller deals can also provide not just financial but also operational benefits, allowing businesses to quickly capitalize on emerging markets and technologies.

3. Findings from Recent Deals: What the Future of Private Equity Holds

The tech and consumer goods industry have been leading the investment spree: Private Equity firms in the US have been actively investing in companies from the tech, consumer goods, and media industries, with investments totaling in the hundreds of billions. Software and technology services have seen the greatest amount of activity – for example, in 2020 alone Softbank floated over $50 billion across multiple tech investments.

Renewable energy has emerged as a new hotspot: Renewable energy is quickly becoming the new player in terms of PE investment. Deals in this sector are becoming more frequent and larger in scale, with digital infrastructure such as electricity storage and networks being the main target. As renewable energy becomes a larger source of power across the US and Europe, investors are increasingly looking to this sector for long term returns.

  • Leading investment industries include tech, consumer goods and media
  • Software and tech services particularly prominent with over $50 billion floated in 2020
  • Emerging sector of renewable energy industry becoming a key focus for investors
  • Digital infrastructure such as electricity storage and networks a popular long-term investment

4. Reframing Value Creation: Searching for Meaning Beyond Financial Returns

The debate around value creation has evolved significantly over the years, moving beyond the traditional standards of financial returns to encompass a broader understanding of its multifaceted aspects. Reframing our approach to value creation can help us all discover new sources of meaning and purpose.

We can start by considering different stakeholders and approaches to constructing value.

  • Creating value for shareholders may look like expanding market reach and considerable profits.
  • Creating value for customers may mean providing exceptional service and innovative solutions.
  • Creating value for employees may involve cultivating a sense of belonging and meaningful work.

It’s important to keep in mind that value creation is not fixed – it’s an ever-evolving practice that demands creative and inclusive ways of thinking. We can cultivate a shared sense of meaning and purpose within our communities, tapping into what Einstein described as “the greatest strength of man – the power of understanding.” By doing so, we can represent value creation within a contemporary social and cultural context that supports us all. The winds of change have rolled in, ushering in a new private equity industry, one that is not only kinder, but wiser. This era marks a clean slate – a future in which businesses and private equity intertwine to create better opportunities for everybody. For businesses seeking innovative paths forward, and private equity firms seeking to exceed expectations, the future is indeed bright.

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