July 1, 2013
Interviewed by: David Snow
Video Clip
Login to view full video

PE Capital Confidence Is Up

Why are PE investors more optimistic about the global economy than their counterparts from the corporate world? Mike Rogers of EY highlights the key findings of the PE Global Capital Confidence Barometer report.

Why are PE investors more optimistic about the global economy than their counterparts from the corporate world? Mike Rogers of EY highlights the key findings of the PE Global Capital Confidence Barometer report.

PE Capital Confidence Is Up

A Privcap Conversation With Mike Rogers of EY

What were the main findings of EY’s recent PE Global Capital Confidence Barometer study? 

Rogers: The private equity report parallels a report that we do with 1,600 respondents on the capital confidence barometer on a global basis; and so what the private equity folks are telling us is 55% of them felt like the economy is improving right now, which is in contrast to the 51% of the general corporate population so a little bit more optimistic in the private equity world. And that’s up from 23% last fall and a couple things that they were citing and the first one was just general economic growth and sort of comfort level that the economy is coming back a little bit on a broad basis. But then they are also seeing stronger earnings growth and also seeing stronger credit availability.

Why do you think PE respondents tended to be more optimistic than corporate respondents? 

It’s very easy in some ways for private equity to move to hotter markets and so they have the opportunity to without a lot of infrastructure to open up shops in some of these emerging markets and achieve some of that higher level of growth so as they travel the world they were able to pick markets like Colombia, like Turkey like China, and some others that they can go play in and see a little bit more growth opportunity. And so if you are a brick and mortar corporation that has a lot of infrastructure in one particular geographic market, it’s pretty tough to uplift your shop and move somewhere else. But a private equity fund can actually go and make pinpointed investments in any market they choose, to anywhere in the world.

Do you think rising PE optimism is a bullish sign for the M&A market?

We typically see these things move in tandem, that confidence and economic comfort, if you will, tend to lead to transactions. But I have to say that has decoupled a little bit over the last couple of years and during the period that we’ve been doing the barometer on the corporate side as well. And the stage is really set if you think about the cash that many of these organizations have that they’ve raised the capital, they’ve raised the funds. The credit availability is certainly there, and in most markets there is a little bit boost in confidence in some of the emerging markets. And so you’d think all the puzzle pieces are there. I think the one thing that is holding this group back or holding the investment process back is just this lack of growth. And I don’t think you will see a lot of fund managers that will say, let’s pay up or pay high multiples for a company that’s growing at 1% per year. When the consumer fully returns and we get high growth in some of these organizations, I think you will then see a scramble because people will suddenly feel like we don’t want to be left behind. The consumers who back these businesses are growing. We are willing to go make the investments and do these transactions because the credit availability as we mentioned has been strong and actually the funds have had good luck in sort of raising money as well and so from our survey almost 75% of them have said that the markets are positive from a fundraising perspective as well. So I think we are seeing all the puzzle pieces come together. I am sort of watching that lack of urgency around the growth and I think it also ties to the global economy in terms of the central banks and what they do to drive the business, so it’s an interesting environment.

 

Register now to watch this video and access all content.

It's FREE!

  • CHOOSE YOUR NEWSLETTERS:
  • I agree to the Privcap terms of use and privacy policy
  • Already a subscriber? Sign In

  • This field is for validation purposes and should be left unchanged.