Mark Hauser highlights that as the 2022 private equity trends investment landscape continues to take shape, the industry has resumed its steady growth after 2020’s pandemic-related business slowdowns. During that period, many sectors of the economy, including the financial industry, were forced to greatly curtail normal business operations. Because of this collective pause, private equity firm owner Mark Hauser notes that fewer strategic deals took place in the mostly virtual operating environment.

2021’s Private Equity Market Rebound

In 2021, private equity investments experienced an impressive turnaround. For perspective, disclosed buyout deal values reached a record $1.1 trillion, according to the Bain consulting firm. Four factors were behind this dramatic market reset.

The Fed’s continued low interest rates, and the threat of upcoming tax hikes, spurred private equity market investors to negotiate more deals in 2021. Negative debt market yields also played a key role.

Finally, the large volume of “dry powder,” or capital available for investment, was a significant factor in the 2021 market upswing. In fact, says PitchBook, U.S.-based private equity funds collectively had $841 billion of available dry powder at the end of 2021 Q1.

2022 Private Equity Market Projections

Private Equity Market Projections

As 2022 Q1 gathers steam, private equity investment expert Mark Hauser highlights several trends that currently drive the market. Although some predicted developments are holdovers from 2021’s operations, others reflect currently evolving market factors.

For background, PitchBook states that private equity market investments are on course for record highs during 2022. The five largest private equity firms’ collective assets under management (or AUM) could exceed $3 trillion this year. Early in 2022, the five companies have already reached an aggregate AUM figure of $2.25 trillion.

Increase in Growth Investments

Private equity transactions have often involved full-fledged company takeovers. In 2022, however, private equity firms will devote more attention to growth investments. During the past few years, for example, the technology sector has seen an influx of growth-oriented investment capital. This trend is in sharp contrast to the previous focus on leveraged buyouts.

Two other factors have helped to shift the focus away from leveraged buyouts. First, private equity firms have increasingly received scrutiny from politicians and celebrities critical of the companies’ operations methods.

In addition, there is growing concern about unusually high valuations for leveraged buyout targets. In fact, says PitchBook, over 25% of these valuations were 20 times larger than the respective firm’s 2021 earnings before interest, taxes, depreciation, and amortization (or EBITDA) figure.

Plentiful investment capital has caused private equity firms to become more amenable to the high valuations. However, says private equity expert Mark Hauser, there is concern about whether the businesses can sufficiently expand their operations to justify the abnormally high valuations.

Re-evaluation of Contract Terms and Conditions

Besides pandemic-related challenges, 2020 brought the onset of supply chain and labor shortages. The ongoing port congestion issues also began during that period. Mark Hauser emphasizes that the resulting economic impacts, and the ineffective government responses, have led to considerable investor concern about the contractual aspects of private equity deals.

Private equity firms have focused on the period between a deal’s agreement date and its final closing date. Companies are paying much closer attention to prospective portfolio businesses’ actions during that period. Jayne Juvan, Tucker Ellis’ Chair of M&A, securities and capital markets, says the firms are intensely monitoring each seller’s activities.

Specifically, the private equity firms want to prevent the seller from enacting changes that could negatively impact the private equity firm’s prospects after the transaction’s conclusion. Juvan also voices firms’ concerns about significant external variables’ effects on the deal.

In that case, says Juvan, the involved private equity firm wants to play a key role in the business’ interim operations. These concerns likely resulted from private equity firms’ unexpected cash infusions to portfolio companies negatively impacted by the pandemic.

Increased R&W Insurance Policies

To protect against these unexpected occurrences in the future, many private equity firms have purchased representations and warranties (or R&W) insurance policies. As private equity expert Mark Hauser notes, an R&W policy essentially provides a safety net for both parties. To illustrate, a buyer is covered for false seller disclosures such as untrue financial statements.

Sellers also receive protection, as they can depart the transaction with their sales proceeds. In fact, says Juvan, many private equity firms and sellers have jointly put the R&W policies in place to protect their respective interests.

Increase in Specialty Hires

Increase in Specialty Hires

To improve portfolio companies’ market positions, private equity firms often contract with operating partners who specialize in a certain market segment or industry. In fact, private equity companies have often been recognized for this successful approach. In 2021, the market saw much higher demand for these skilled operations specialists. Private equity executive Mark Hauser says that trend will likely continue in 2022.

On a related note, data scientists are also much in demand. These specialized data analysts assist portfolio businesses with data acquisition and comprehension. By using data to achieve more efficient, cost-effective operations, each portfolio company assumes a stronger market position.

Finally, private equity firms are strongly focused on meeting environmental, social, and governance (or ESG) standards. Although some companies have assigned an existing employee to manage this function, others have recruited a recognized expert to oversee this program.

Finally, the Securities and Exchange Commission (or SEC) is considering a plan to allow private equity firms to market products to the larger retail investor market. If the SEC gives the green light, bigger private equity companies will enact more targeted hires to fulfill these roles.

Focus on Private Equity Performance Parameters

Some financial industry analysts continue to exchange views on how to measure private equity investments’ performance. Currently, there is no universal standard for the types of investments included in performance analysis. Some analysts may exclude low-performing funds while highlighting trendy funds that are performing well.

Additionally, there is no agreement on appropriate benchmarks that provide a baseline for comparative analysis. Finally, as with any statistical analysis, the median performance results mean that certain funds outperform the median while others achieve subpar returns.

The Challenge of Verifying Private Holdings

However, independently confirming the value of private equity returns will likely continue to present the biggest challenge. Unlike the lightning-fast price updates for publicly traded stocks, there is no foolproof way to authenticate private equity investments’ values.

Typically, a private equity investor must commit to a 10-year capital investment cycle. As a result, there’s a long lag time between the initial investment and its liquidation after the 10-year period. The completion of the full investment cycle enables an accurate evaluation.

Eileen Appelbaum, the Center for Economic and Policy Research’s co-director, speaks from her extensive private equity experience. “You can’t see how a fund actually performs until it liquidates at the end of 10 years, so you are going by what the general partner says the companies in that fund are worth,” she concludes.

Hauser Private Equity, a hybrid private equity fund management firm, continues Hauser Capital Partners’ successful investment strategy. Founded in 2008, Hauser Private Equity pursues direct co-investments in the lower-middle and middle-market segments.

Cincinnati-based Hauser focuses primarily on the healthcare, financial and business services, consumer goods, and industrials verticals. This well-regarded private equity firm frequently partners with select control buyout funds.

In addition, Hauser Private Equity teams with growth equity funds along with special situation funding vehicles. Hauser’s managers typically seek funds containing strategic investment templates that provide portfolio businesses with operational leadership.

Hauser’s investment partners typically exhibit these attributes:

  • North American-based Funds and Portfolio Businesses
  • Funds that Exhibit an Operations Focus
  • Funds with a Targeted Value-added Strategy
  • Teams with Successful Co-investment Track Records
  • Funds with Demonstrated Successful Exit Strategies

Hauser Private Equity’s investment model enables the selection of investment partners from varied industries. However, the firm is unable to work with funds that represent holdings in the real estate, emerging technologies, or venture capital arenas.

Execution of Each Private Equity Investment

Hauser’s core investment strategy largely determines the amount of each targeted investment. Typical investments range from $200 million to $2 billion. The targeted fund’s industry, along with other variables, is a significant factor in the investment allocation.

To identify these complex investment opportunities, and bring them to fruition, Hauser Private Equity’s Limited Partners apply their recognized multi-industry expertise. After exhaustive due diligence and execution of growth strategies in compliance with applicable laws and regulations, each manager confidently pursues a predetermined strategy designed to produce optimal returns.

Poised to Serve Clients Nationwide

Poised to Serve Clients Nationwide

Hauser Private Equity, under Mark Hauser, has positioned itself to provide superb service to investment partners throughout the United States. In addition to its Cincinnati headquarters, the firm maintains operations in the Chicago, Illinois, and Los Angeles, California financial centers. Through seamless in-person and electronic communications, Hauser Private Equity stands ready to work with co-investors to achieve mutually beneficial goals.

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