Private equity will be able to cut some of its best-ever deals in the current climate, with lower valuations and reduced competition helping the sector to “exceptional returns”, according to Dipan Patel, co-chief executive of UK-headquartered buyout group Permira. Speaking at the FT Private Capital Summit in London, Patel said deals made after the dotcom crash and global financial crisis were “among the best” ever, and that “we’re right back there today.” He added that the top quartile of funds would see exceptional returns. Patel noted that the buyout sector had struggled through tough years, with challenging IPOs and higher interest rates making sales difficult at desired valuations.
Many firms had invested at high valuations during ultra-low interest rates and resisted selling at prices that would crystallise underwhelming returns, reducing cash to institutional backers. He said being in a high-rate environment with “eyes wide open” is not a problem for private equity because it translates into better deal pricing. John Redett of Carlyle Group said “free money” and long economic expansion had caused complacency, with firms benefiting from multiple expansion without focusing on value creation.
However, he noted attractive opportunities remained, especially in defence companies and unloved divisions of large conglomerates. Patel also said AI disruption would create opportunities in software, which had gone from overcapitalised to undercapitalised. Permira had previously allocated up to 30% of its activity to software but did no deals in the sector for three years after Chat GPT’s launch.
He warned that no sector is immune from AI, calling it “a lot more capital chasing a lot fewer assets” — a potential trap. Nic Humphries of Hg said only firms using AI in portfolio companies and scaling that capability would survive, adding: “People who do nothing — dead.” Julian Salisbury of Sixth Street said the “pig in the python” — companies stuck in buyout portfolios — would offer opportunities for investors who could make tailored equity-debt investments to recycle cash and provide incremental financing.
Source: Financial Times Companies · Summarized by HeadlinesBriefing