- Trump optimism down by more than half
- M&A still expected to pick up in second half
- New emphasis on value creation amid increased competition, high multiples
David Hellier is president of the Association for Corporate Growth’s New York chapter, which provides a network for middle-market dealmakers in private equity, corporate development, professional services and finance. Hellier is also a partner at Bertram Capital, where he leads sourcing, investment assessment and intermediary relationship development.
ACG New York recently released the results of its Mid-Year Middle-Market Survey, which found a pronounced turnaround in opinion of the Donald Trump administration’s influence on fundraising.
The belief among dealmakers that President Trump would be good for PE’s ability to raise new capital dropped by more than half, from 79 percent at the end of last year to 37 percent. What accounts for this?
That’s a reflection of the uncertainty that has been driven through all the news about the administration not having effective policy actions that were talked about back at the end of 2016. So, the promises versus the delivery, I think, has been disappointing to our members. At the end of the day, we can be hopeful about what happens in Washington, but we can’t be dependent on it.
What’s the outlook for the rest of the year?
Almost half of our respondents think that M&A activity will pick up during the second half, so there continues to be a fairly strong positive opinion. Almost 60 percent believe that the economy is going to keep in line with generally optimistic projections.
We definitely have seen deal flow significantly improve from Q1 to Q2, and generally we expect to continue to see that stay pretty steady in August, September, maybe to October. We have seen more sponsor-owned or private-equity-backed deals coming to market, versus founder- or family-owned businesses, but I think on the private equity side you have sophisticated buyers and sellers of businesses, significant capital available, and you continue to have a positive lending environment, in spite of the waning excitement from a governmental standpoint.
Seventy-five percent of respondents said private equity will outperform hedge funds and venture in H2. What’s the basis for that?
We believe our sector is the steadiest asset class, and given the level of political and economic uncertainty, private equity should perform better than venture and hedge funds. We also invest with a longer view, and when private equity firms exit businesses, they do so with a fairly clear view of how the businesses should be valued in the market. We are coming off a solid run in most of the private equity business segments, which should translate to very solid performance on exit.
What’s the strategy of your firm, Bertram Capital?
We invest in business services, consumer and industrial. We have a very focused approach as far as creating value, primarily through a capability called Bertram Labs, which is an internal software development and internet services group that works with our companies. Our belief, and I think this is a growing focus, is that with more competition, and a lot more pricing pressure, the traditional LBO model is becoming more challenging. You can’t just buy and hope you can pay off the debt, so more firms are taking a value-creation approach.
How is ACG addressing this new emphasis?
We recognized that private equity firms were moving beyond the traditional LBO model, and even the use of operating partners, in an effort to better position their portfolio companies. We also recognized that we have a significant number of members who consult with private equity firms on everything from IT solutions to sales improvement, to product planning, to LEAN manufacturing tactics, to environmental remediation, that we felt were valuable resources to our deal-making members. We launched our first Value Creation conference last October and have been incorporating this theme into our industry events.
Action Item: Get in touch with David Hellier at ACG at email@example.com.
David Hellier of ACG and Bertram Capital. Photo courtesy of ACG.