DEAL OUTLOOK CHAPTER
“NO-ONE KNOWS EXACTLY WHEN A CORRECTION WILL OCCUR, BUT INEVITABLY, IT WILL”
DAVIS NOELL
SENIOR MANAGING DIRECTOR, PROVIDENCE EQUITY PARTNERS
T
he last few years have brought a flood of capital into private equity, in particular around enterprise software and growth equity technology companies. As we look forward into 2022, this trend will almost assuredly continue given the massive amounts of capital being deployed to pursue those strategies. The risk here is that anytime there is so much capital chasing the same strategy, eventually the excess return gets priced out of the deals and the overall return profile suffers. No-one knows exactly when a correction will occur, but inevitably, it will, and our goal is to continue to follow a prudent investment strategy that works over the long-term through any market cycle. We’ve been sticking to our core sectors of media, communications, education and technology. In order to mitigate some of the risk we see in the market overall today, we’re focused on disciplined pacing and diversification of our portfolio. What that means for us is a measured approach to investing, while also looking to generate realisations in
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our existing assets where possible. Ideally, we seek to invest at a steady pace over a four-to-five-year period. This is a contrast to others we’ve seen in the market who are investing over half their available capital in the last twelve months alone. At the same time, realisations in our older investments have allowed us to take advantage of the current markets. We have managed our portfolio with a goal of being effectively market neutral, seeking out the best companies and helping them grow. To build a diversified, robust portfolio, we have tried to balance our investments across our areas of strength. We look to deploy capital across North America and Europe to find attractive investment opportunities at any given time. We also seek diversification across our four sectors. We try to identify the right long-term growth themes and then pick the best management teams and companies that fit those themes. Even though certain parts of the market might be expensive, in our view there are still great companies in which to invest.
Lastly, we try to pursue a variety of companies, so that every investment isn’t correlated to the same themes or key factors. We always keep an eye toward solid growth and profitability, and have a portfolio that is composed of investments acquired at a range of EBITDA multiples. Ultimately, our intention is to buy attractive organic growth companies that we can use as M&A platforms and do that at reasonable prices. Looking into 2022, we see a continuation of a very active deal market, combined with one of the busiest capital raising calendars in history, as more GPs are deploying capital faster and looking to raise ever larger funds. Our focus is to continue to responsibly deploy capital, build a disciplined and diversified portfolio and remain committed to our core sectors of experience.
PRIVATE EQUITY GLOBAL OUTLOOK REPORT I JANUARY 2022
