Value creation, the priority for Private Equity in the year of Build-ups and Add-ons

Value creation, the priority for Private Equity in the year of Build-ups and Add-ons

The first debate of the morning had a positive, but at the same time realistic, tone. The conclusions were clear: divestments have been delayed because buyers are more cautious, but deals are still being closed.

Optimism can be found when we take into account that the investment volume had a bigger drop than the number of transactions itself. With increased difficulties in fundraising the experts present at the event defended the need for more creative solutions of financing, in which they highlight equity, debt, convertibles and co-investment mechanisms.

On the more analytical side, the speakers at the Congress indicated that the market in 2023 put an end to 13 previous years of abundant and cheap debt. If the fall in interest rates was abrupt then, their rise has now been even steeper, which has concentrated a large part of the operations on the segment measuring the market, which for another year is the most active.

Where are the opportunities? The adjustment in prices and expectations between buyer and seller are the key, and a sectoral concentration in resilient markets was not felt.

In the current situation of uncertainty, funds and companies are focusing on generating as much value as possible in their portfolios and companies. Which value creation strategies are they working on? In the current context, in addition to value creation through carefully selected add-on acquisitions, there is a trend towards more active participation in the management of investees and a growing focus on achieving sustainable growth that adds value to or differentiates portfolio peers.

It is important to be imaginative in these scenarios, to take great care of the balance sheet, where value can be generated, and to try to return capital as soon as possible to be able to return to fundraising and continue the investment cycle.

More than 50% of large PEs consider the development of build-up strategies as the main lever of value creation for their investees and expect this to continue to be the case in the coming years.

Spain is a country that offers many opportunities because there is a lot of fragmentation. That is why it is not so relevant to talk about activity in macro-sectors, but rather about market niches, where we have seen the deployment of more interesting build up strategies.

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