FORWARD: In today’s highly competitive market place, the ability to execute and complete a deal is more challenging than ever before. Private equity firms face a number of hurdles in the race to win exclusivity and they have developed a range of strategies to ensure success.

Marsh & McLennan Companies (MMC) Marsh, Mercer Human Resource Consulting, and Kroll wanted to find out more about the issues that concern private equity firms in this environment, and the ways in which these can be overcome. So we commissioned Mergermarket to conduct a research study into European private equity professionals’ perception of deal risks.

When we began, we had a strong sense that competition and price pressure would be the principal areas of concern and this turned out to be the case.

But many other comments were made, providing intriguing insights into the factors that cause private equity firms to walk away from deals. Lack of confidence in management, lack of information during the due diligence process and unquantifiable/unknown liabilities were all cited.

Looking at the findings, we questioned whether these seemingly deal-breaking scenarios could, in fact, be overcome. Are there alternative strategies and approaches that improve a private equity firm’s competitive position and the likelihood of successful deal completion?

We believe there are, so we have combined the qualitative and quantitative findings from Mergermarket’s research with some thoughts about how private equity professionals stay ahead of the pack.

We hope readers will find this study an interesting gauge of industry sentiment, as well as a useful guide to the advice and the solutions being developed for private equity practitioners.

Marsh, Mercer and Kroll are leading advisors to the private equity market. Our teams are dedicated to enhancing successful deal completion. We are, therefore, delighted to be involved in this important research.

Edwin Charnaud
Eric Warner
Chris Morgan Jones

Visit Private Equity Report Europe 2006 Download Page

You can download full publication in pdf format.

 Looking Ahead

In the next 2 years, what are the main challenges the private equity industry will face in remaining competitive?

■ “Managing competition; the increasing number of intermediaries; managing to differentiate and stand out”

■ “Everyone is going in the same direction, therefore it is important to find new markets and opportunities. A cycle is coming to its end (6 years)”

■ “Making sure that public companies don't start doing the same as private equity. Increasing the leverage and incentives schemes for managers”

■ “Making sure that the extra competition does not destroy the market. Extra competition means higher prices, therefore lower returns. Debt levels are getting higher and higher, and if interest rates change, it will cause trouble in the market place”

■ “Finding sufficient international deals due to increased competition”

■ “Remaining competitive in the M&A markets; watching out for macro investments and being careful of interest rates and debt”

■ “Unexpected interest rates spikes or defaults in current leveraged buy outs: both could cause banks and collateralised debt obligations to be more conservative and subsequently reduce pricing power for private equity funds”

■ “Unrealistic pricing: trends towards overleveraged deals”

■ “Finding attractive targets, and finding a way to cooperate with hedge funds”

■ “Excess of liquidity”

■ “The industry is in a healthy competitive situation and I cannot see specific challenges for it as a whole”

■ “[Private equity is] not just a financial investment: [we] have to get more involved with the whole process even after purchase”

ABOUT KROLL:

Kroll is the world’s leading risk consulting company. For more than 30 years, Kroll has helped companies, government agencies and individuals reduce their exposure to risk and capitalize on business opportunities. Kroll is an operating unit of Marsh & McLennan Companies, Inc., the global professional services firm.

With offices in more than 65 cities in the U.S. and abroad, Kroll can operate and restructure businesses; scrutinize accounting practices and financial documents; gather and filter electronic evidence for attorneys; recover lost or damaged data from computers and servers; conduct in-depth investigations; screen domestic and foreign-born job candidates; protect individuals, and enhance security systems and procedures.

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