PRIVATE EQUITY INVESTING 2018: RETHINKING THE PRIVATE EQUITY INVESTMENT MODEL TO BUILD VALUE

Private equity investing, especially in the middle market, has never been hotter.  Market conditions are ideal and fundraising is at historic levels. Despite this appearance, however, actual results suggest that something is wrong.  Portfolio companies are not hitting their expansion targets, with many deals failing to even recover their initial investment. Making it on the "front end" by outsmarting the market, or finding that truly undervalued company and watching it appreciate over time, may no longer work. The “leverage” game may very well be over; it is certainly not a safe bet going forward. Rather, to continue to bask in significant investment returns, private equity investors need to make it up on the "back end" by working their deals and, in many instances, anticipating and managing problems quickly.  In short, the private equity investment model needs to change, with investors taking a more "active" role in improving performance of their portfolio companies. There are a number of steps that investors should adopt which, when implemented, can help private equity investors improve results and reach return targets.