In a rapidly changing financial landscape, it can be difficult to stay on top of the latest developments in private equity. In this article, we’ll take a look at how private equity is evolving in the US and what investors need to know about the changing landscape. Discover how the industry has changed over time and what trends are emerging that investors should be aware of.
The US private equity market has undergone significant changes in recent years. To better understand the current state of affairs, it is important to first take a look at the history of private equity in the US. Private equity firms have been around since the early 1900s, but the industry first gained traction in the 1970s. At that time, a new type of private equity firm began to emerge, focused on providing capital to companies that were not able to access traditional sources of financing.
This type of firm quickly became popular with investors, as they were able to generate high returns by taking on more risk than traditional investments. The industry continued to grow throughout the 1980s and 1990s, as more and more firms entered the market and competition increased.
The early 2000s saw several changes in the private equity landscape. First, many firms began to focus on larger deals, as they were able to generate higher returns from these transactions. Second, Private Equity started becoming more mainstream, as it was featured prominently in the news media. Finally, many high-profile scandals damaged the industry’s reputation and led to increased regulation.
In recent years, the private equity industry has undergone further changes. The most significant change has been the rise of “dry powder” or unspent capital commitments from investors. This has led to increased competition for deals and higher prices paid by companies. In addition, many firms have been forced to focus on more specialized strategies, such as growth equity and venture capital.
History of Private Equity in the US
The first private equity firm in the United States was the American Research and Development Corporation, which was founded in 1946. ARDC provided funding for young companies with high potential but little access to capital. In the 1970s, private equity firms began to raise larger sums of money, typically through limited partnerships. These firms would use the money to make leveraged buyouts, or LBOs, of public companies. The firms would then take the companies private and attempt to improve their operations before selling them back to the public at a profit.
During the 1980s, private equity firms became increasingly aggressive, often using junk bonds to finance their activities. This led to several highly leveraged and speculative investments, many of which ultimately failed.
As a result, private equity came under intense scrutiny from regulators and investors alike. In the 1990s and 2000s, private equity firms returned to their roots, focusing on making long-term investments in growing companies. Today, there are hundreds of private equity firms in the United States, each with its investment strategy and portfolio of companies.
Current Trends in Private Equity
In the United States, private equity has undergone a significant evolution over the past few decades. Today, private equity firms are more active than ever before in a variety of industries, from healthcare to technology. One of the most notable trends in recent years has been the rise of so-called “mega-deals” involving large sums of money. In 2017, for example, private equity firms completed deals worth an average of $433 million per deal. This is up significantly from previous years and reflects the growing size and power of these firms.
Another trend that has emerged in recent years is the increasing involvement of private equity firms in non-traditional sectors such as healthcare and technology. This is due in part to the fact that these industries have become increasingly attractive to investors looking for high returns.
Finally, it’s worth noting that private equity firms are becoming increasingly global in their reach. While historically most activity has been concentrated in the United States and Europe, today there are many firms active in Asia, Latin America, and other regions around the world.
Different Types of Private Equity Strategies
There are four main types of private equity strategies:
1. Venture capital investing is typically high-risk but can also offer high rewards. This strategy involves investing in early-stage companies that have the potential for high growth.
2. Growth capital investing focuses on more established companies that are looking to expand or restructure. These companies usually have a proven track record and solid management teams in place.
3. Leveraged buyouts (LBOs) involve acquiring a company using a combination of debt and equity financing. This strategy can be risky, but can also provide investors with a high return on investment if the company is successfully turnaround.
4. Mezzanine financing is a type of debt capital that is typically used to fund expansions, acquisitions, or other corporate growth initiatives. This strategy can offer higher returns than traditional debt investment but is also riskier.
Regulations and Governmental Intervention
The U.S. private equity industry has undergone a dramatic evolution over the past several decades, driven by changes in government regulations and intervention.
In the early days of private equity, investors were largely unregulated and there was little government intervention in the industry. This changed in the late 1970s when the U.S. Securities and Exchange Commission (SEC) began to crack down on fraud and abuse in the industry. The SEC imposed several new regulations on private equity firms, including restrictions on how they could raise money and how they could operate. These regulations had a profound impact on the industry, forcing many private equity firms to change the way they did business. Some firms went out of business altogether, while others adapted and thrived under the new regulatory regime.
Today, the private equity industry is once again undergoing a period of change, driven by new regulations from the SEC and other governmental agencies. These new regulations are designed to protect investors and ensure that private equity firms are operating transparently and fairly. As an investor, it is important to be aware of these changes so that you can make informed decisions about where to invest your money. With careful research and due diligence, you can find private equity firms that offer attractive investment opportunities despite the changing landscape.
Private equity has come a long way in the US, and it remains an important asset class for both institutional and individual investors. Understanding the evolution of private equity is essential for investors to make informed decisions about their investments and ensure they are getting the most out of their allocations. With continued growth expected in this area, it is important to stay abreast of new trends so that you can capitalize on them when opportunities arise.
Evidently, the Private Equity world and game is constantly changing and evolving and it is our job to ensure you have the right team. If this is a concern, then drop me a note at Alex.Rawlings@Raw-Selection.com we specialize in Private Equity professionals and PE-Backed C-Suite searches and we have a multitude of case studies and testimonials to represent our work which can be found on our website and across our LinkedIn. We know what high performers look like.