Opportunity is knocking

If private equity firms are to weather the turbulent market conditions they must diversify and differentiate their business and respond to the key challenges in today’s market, according to auditing giant PricewaterhouseCoopers (PwC).

The latest report from PwC, entitled ‘Seeking differentiation at a time of change’, revealed that in response to the market conditions, larger funds are broadening their investment criteria and geographical horizons. The holding period for portfolio companies is also extending.

The key findings of the report reveal that sustainable growth will become critical as growth earnings become the primary driver of internal rates of return. Fair value accounting presents real challenges for the private equity industry at a time when investors, regulators and auditors are demanding robust assessment of valuations.

Fund managers need to build and develop robust internal procedures to manage tax risks in the new territories to which private equity is investing in. Companies should also access the risks when expanding into BRIC territories. The report advises the private equity industry to develop emerging market strategies, careful planning and due diligence.

Brendan McMahon, the global investment management and real estate private equity leader for PwC said: “The private equity industry is witnessing a dramatic downturn in deal activity and is suffering from a lack of leverage caused by the turmoil in the financial markets. Private equity players will need to adapt to longer term holding periods by looking at how they create value for portfolio companies.”