Global Private Equity Report 2012 | Bain & Company, Inc.
Figure 1.24: Alpha in action: PE-backed companies suffered a lower rate of defaults through the economic crisis Lower default rate in the 2008–09 recession...
...consistent with long term default performance
Annualized rate of default in 2008–09
Annualized rate of default in1970–2002
8%
8%
6.2 6
6 4.7
4
4 2.8
2
All issuers
2 1.2
0
PE backed companies
Speculative grade companies
0
PE backed companies
Speculative grade corporate bond issuers
Note: Default defined as missed payment or bankruptcy filing (excludes distressed exchanges) Sources: “The Credit Performance of Private Equity Backed Companies in the ‘Great Recession’ of 2008–09,” Jason M. Thomas, Private Equity Council, March 2010; “Leveraged Buyouts and Private Equity,” Steven N. Kaplan and Per Stromberg, Journal of Economic Perspectives, Winter 2009
In 2011, the best GPs doubled down on the measures that generate alpha by building four mutually reinforcing capabilities. First, to ensure that they end up closing the right deals at the right price, they worked to refine truly proprietary investment theses and beef up their due diligence. Second, they tweaked their investment strategies to adapt to the new market reality, weighing each new opportunity not only for its inherent attractiveness but vetting it objectively against their own core strengths and ability to compete. Third, they strengthened and professionalized their organization, working continuously to augment the team through recruitment, training and retention of top talent to ensure they have the right people in place. Finally, they acted to build a repeatable valuecreation model for generating alpha over and over again by marshaling the firm’s resources to meet their most common portfolio company needs across all stages of the ownership cycle. By 2011, GPs had begun to realize that value creation through cost reductions alone would not be enough. Many now recognize that both companies currently in their portfolio and ones they acquire in today’s high-multiple, slow-growth environment are already running lean. Understanding that the future will belong to those that are able to spot growth opportunities and capitalize on them, the best GPs are working to adapt their portfolio engagement model to successfully pursue growth.
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