13 12月 2024
Insight
Activity levels are strong and the pipeline of transactions for CY25 is extremely strong.
We have carefully analysed the market and formulated our top 10 predictions for the year ahead.
These are not your run-of-the-mill cursory predictions, but deep insights from what we are seeing on the ground across a large range of financial sponsors and situations.
Top 10 Predictions
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The market profile of funds is evolving with an influx of large cap General Partners (potentially with more to come…)On the one hand this creates more competition for assets, but on the other it also means more buyers in secondary transactions (which have historically been ~40% of sponsor exits, with that share increased this year). |
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Creative approaches to realising investments to continueWith IPO markets challenging and timing of exits more delicate, we expect the use of partial sell-downs ahead of a full exit and “backdoor listings” through existing listed companies to continue. |
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The enhanced ESG focus to continue to shape transactions and processesThe evolving nature of ESG perspectives will be an important dimension to navigate, introducing complexity to deal structures and an important factor in due diligence, which sellers will need to be alive to and plan for early. |
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Management buy-in as a competitive advantageIncreasingly, strong rapport with rolling-over management will be a critical success factor, particularly in secondaries where their stake and voice will be more dominant. |
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Incentive structures for management to get more attentionDesigning incentive structures that motivate performance in second and even third terms of private equity ownership will continue to be an area of focus, as competition for assets heats up and General Partners focus more on performance. |
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Opportunity for further capital deployment will be a focusFunds will take particular interest in platforms that enable them to utilise their capital advantage and present an opportunity to further deploy capital efficiently, whether through capex projects, bolt-ons or organic expansions. |
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Take-privates to continue to be competitiveTake privates kicked-off by one fund will be seen as an unofficial process, and targets themselves maybe more proactive to get in front of bidders and commence a process. This will play out particularly given value appears to be presenting in listed company valuations in the face of an improving interest rate environment. |
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Regulatory intervention to continue, requiring more strategic consideration than ever beforeWhether in the form of industry specific reviews and focus (including ASIC’s interest in private transactions) or the incoming merger clearance reforms, general partners will need to be more tactical than ever in navigating the regulatory landscape. |
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Offshore funds to continue to target local opportunitiesAustralian targets will continue to appeal ahead of other lower growth and higher risk jurisdictions, as global or pan-Asian funds will seek to deploy more in our market. Australia’s desirability as an investment destination and the need to deploy will see more international funds set their sights on local assets. |
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Asset realisation the focus, and performance will be important to fund raisingWhile fund raising activity will continue to be healthy, the growing exit pipeline will be an important moment for funds to prove strong performance worthy of reinvestment. |
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The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2024
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