Private Equity Resilience: Boston Forum Delves into Strategies Amid Market Dynamics

The Annual Private Equity Boston Forum held by Markets Group brought a series of PE strategies to light, summarized by partners Seth Harris and Travis Rivers

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The Annual Private Equity Boston Forum held by Markets Group, supporting the continued development of the private equity investment industry along the Northeast, brought together industry leaders, experts, and investors to discuss the current landscape, challenges, and opportunities in the private equity (PE) market.

ON Partners was a proud sponsor of the event in our continual partnership and collaboration with leading private equity funds to build impactful C-level and board leadership teams.

The PE Forum shed light on key trends and insights shaping investment decisions, with a focus on adapting to a changing environment with speakers and panelists from Apollo, Advent International, Bain Capital, Berkshire Partners, H.I.G. Capital, Riverside, Thomas H. Lee Partners, and more.

Highlighted is a summary of the insights delivered at the Forum by ON Partners executive search experts Seth Harris and Travis Rivers.

{Read related article: 6 Takeaways from CIO/CTO Forum on Generative AI in the Enterprise}

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Market Overview: Deal Flow and Valuations

Despite ongoing challenges, the consensus among participants was that investment remains active. However, deal flow has slowed, and investors are navigating a landscape marked by increased scrutiny on valuations and fundamentals. The higher interest rate environment is putting pressure on deal cycles and elongating processes. The distinction between ‘A’ assets, still in high demand, and non-‘A’ assets with valuation gaps between buyers and sellers was emphasized. A framework for GPs in the process of raising a fund were the 4C’s:

• Calendar – Get visibility now for 2024
• Consulting – Add value as a trusted adviser
• Catalyst – “Invest earlier with us” mindset
• Creative – Think differently – be a more creative dealmaker

Investment Strategies in a Dynamic Environment

The panel discussions highlighted a shift in focus towards organic growth strategies, with a cautious approach to bolt-on strategies due to the increased cost of capital. Larger PE firms continue to successfully raise funds, but smaller firms face challenges, and some are under-subscribed. Recession scenarios are factored into every investment model, leading to a growing interest in tech-enabled businesses.

Value Creation via Human Capital

There was a general consensus that taking human capital selection from art to science is better achieved via data. The creation of a repeatable framework that includes a scorecard focused on stakeholder alignment, the speed to make changes quickly, and skills & capabilities was stressed. What’s crucial is the context for a particular operational situation and executive role.

There were a variety of attributes associated with what constitutes a strong performing senior executive in a PortCo including execution orientation, revenue/profit mindset, team building & followership, humility, trust, and valuing the partnership with their investment team.

Role of AI in Private Equity

Artificial Intelligence (AI) emerged as a critical factor, providing efficiency and productivity gains. PE firms are evaluating the impact of AI on each portfolio company, determining whether it provides a strategic advantage or poses risks. The adoption of AI is not only transforming diligence processes but also influencing full AI strategies for portfolio companies. The debate on whether AI is a friend or foe and when to leverage its capabilities was a recurring theme.

Regulatory Changes and Transparency

New SEC regulations were discussed, with an emphasis on increased transparency on deal terms and rates. The regulations may influence investor behavior, potentially delaying deal cycles as investors wait to assess terms offered to others. The compliance burden is expected to rise, impacting smaller PE shops more significantly.

Keynote Insights and Market Sentiments

Keynote speakers provided valuable insights into market sentiment. One speaker highlighted a decrease in capital deployment and an elongated deal cycle. Another speaker emphasized the impact of rising interest rates on deal dynamics and the need for clear data and a thesis before making investment decisions.

Strategies for Value Creation and Optimization

Portfolio optimization and value creation were central themes. Operating partners stressed the importance of having the right talent in place, tailoring strategies for growth or transformation, and utilizing AI to enhance decision-making. Panelists discussed the challenges of evaluating fit with management teams and the need for clear communication in value-creation efforts. Additionally, the importance of finding the right skill set to fit their PortCos’ current stage i.e. a company in transformation vs a growth-oriented PortCo.

Outlook and Guidance

The middle-market outlook presented challenges in valuations due to interest rate pressure, but participants were optimistic about transactions picking up in 2024. The closing keynote by Stephen Pagliuca of Bain Capital provided a broader perspective on global trends, urging industry players to be patient, cautious, and diversified in navigating the evolving investment landscape.

In conclusion, the PE Forum in Boston offered a comprehensive view of the challenges and opportunities facing the industry. From adapting to regulatory changes to leveraging AI for strategic advantage, private equity professionals are navigating a complex landscape with resilience and innovation. The emphasis on patient, cautious, and diversified strategies underscores the need for adaptability in an ever-evolving market.

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Seth Harris and Travis Rivers are partners at ON Partners, a pure-play retained executive search firm building C-level and board leadership teams for leading private equity funds and portfolios.

Seth Harris has over 20 years of experience building leadership teams for late-stage VC-backed, mid-cap, growth / private equity to global multinational organizations in the Technology sector including SaaS, IaaS, PaaS, Managed Services, and IoT.

Travis Rivers focuses his executive search expertise on Professional Services and Technology sectors – spanning IT Services, Consulting, Tech-Enabled Business Services, and Cybersecurity.