Trends in Private Equity Investment

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Private equity investment trends are continuing to unfold in 2023 and major changes may be ahead as the private equity investment sector moves forward. In recent years, there has been a sea change among competitors and the motivation to conduct business differently. No longer content with “the ways things are done,” private equity has moved toward creating a lean structure, digital processes, and greater attention to tax issues. 

Private equity investment is now under pressure to change and those that refuse to close their traditional playbooks to open new ones (digitally, no doubt), will find their firms falling behind in the field. How can new trends be addressed? In this article, we’ll examine these trends to discover ways in which private equity investment firms can open a new playbook in preparation for the years ahead.   

Trend:  Creating Value in Challenging Circumstances. 

In recent years, private equity investment firms continued to meet demand, while the difficulties of the pandemic were pushed into the supply closet. The importance of closing took precedence over other considerations and sales were robust as a result. The recognition of cost considerations didn’t demand attention, or not nearly as much as filling orders did. Sales records were immense. 

Today’s economic environment looks different with inflation, a questionable supply side in various industries, and a soft demand outlook, private equity investment firms are experiencing a new set of challenges. Companies are shifting to reexamine the needs within and those without. A private equity investment firm that isn’t looking for efficiencies, cost reduction, and reorganization in the playbook is looking at lower profit levels across the board. 

Leading the Trend: How Value Creation Can Win 

One of the most dynamic responses in value creation comes with the M&A sponsorship programs now trending up. In this equation, a qualified independent dealer-broker gets the umbrella protection of a private equity investment firm and all the experience that comes with it, while the sponsoring firm receives a portion of the deals the broker-dealer brings to the firm. The two sides work in a mutually-acceptable plan to create successes formerly not seen or attainable. M&A acquisition has brought an increased value to the broker-dealer and the sponsoring firm as a result. If you are seeking m&a sponsorship to strengthen your broker-dealer deals, the results could very well provide that upward trend in value creation.

Trend: Tax Considerations that Invade Strategic Motion 

Several impactive tax laws have brought the subject of taxes into most strategic planning conversations. Private equity must now keep tax implications on the table in every portfolio discussion. Here is a short list of some factors to consider:

  • Reorganizing supply and demand chains
  • Location of procurement hub
  • Distribution
  • Research and Development division
  • Corporate headquarters location
  • Tariffs, trade taxes, income tax and special incentives
  • Employee workspaces: in office or remote
  • Process automation with tax implications

Leading the Trend: Taking the Proactive Stance 

The proactive stance to the endless tax considerations needs to be deep and wide. First, consider making changes in operations: examine the steps of each value chain to find proactive tax positions. Current indicators suggest tax changes ahead; be open to alternate supply chains and routing options. Build hedges around those tax and tariff gnats to create a more clear snapshot of actual costs. Finally, keep an eye on future tax implications ahead and have critical conversations now; not after the laws are in play.

3.  Using Digital Processes to Create a Competitive Edge

Traditionally, private equity investment firms do not like to move quickly. A digital strategy conversation may go nowhere for some time; however, it is time to examine every process to create a lean firm across the board. In fact, in terms of competition…it is past that time. Here are suggestions for creating a digital platform that won’t shake the tree without harvesting the fruit: 

Leading the Trend: Adopting and Fully Utilizing Digital, Data, and the Cloud

  • Look at value before all other factors. Which industries will bring in success quickly? Bring digital, data and cloud processes into those industries that can return the investment most adroitly.
  • Embrace the culture of change. Adopt new processes and systems to impact every area of your business. Dig in and figure it all out, while embracing what is needed to leap forward instead of fall back.
  • Deploy digital tools: Use monitoring tools and value analytics to support execution of strategic plans. You’ve got them; so, use them.

New trends in private equity investment lead to new leaders in considering and overcoming those trends. If your firm wants to offer a robust plan to overcome many of the trending issues of today, follow the suggestions offered here and take that proactive stance to lead the way.