The global private equity sector has made unprecedented growth in preceding years and is constantly evolving. Competitive deal flow and levels of capital have been remarkable, and the year 2023 is expected to be the same.
Where M&A transactions have broken records, the PE sector has constantly adopted the latest technologies, such as virtual data rooms, and more efficient corporate practices. Private equities being a pivotal element in any economic setup, affect the decisions of investors, potential investors, tech service providers, and corporations.
Here are the top five trends to expect in the private equity sector in the near future:
- Stronger competitor for deals
- Greater technological transformation
- Increasing interests in niche sector
- Growing direct investments in public companies
- Direct lending and interest in emerging markets
1. Stronger competitor for deals
The market has become saturated with investors. That might sound strange, but the competition in the private equity sector has been remarkable — finding deals have become more and more difficult, and you can expect the same in 2023. Here are some common reasons behind this trend.
- Investors are keener on large buyouts
- Unprecedented growth in the number of investors in the market
- More demand for yield
- A massive amount of uninvited capital
That intense market competition has put a lot of pressure on private equity firms to find ways of differentiating themselves and providing maximum value to their investors.
2. Greater technological transformation
Where the pandemic triggered the private equity and M&A sector, it also shifted the corporate sector’s focus on integrating more technology in their operations—thanks to mandatory covid-19 lockdowns. However, these lockdowns turned out as a blessing in disguise.
AI-backed technologies like online data room software just revolutionized multiple processes like M&A, prospecting, due diligence, partnerships, communication, and, most importantly, secure data sharing. It is safe to say that technology has already become a core ingredient in the modern-day PE industry.
- Note: A commonly known example of a successful M&A driven by technology is Viacom CBS merger which took place in 2019. The transaction’s value is approximately $15.4 billion, and the documented purpose was to combine efforts to compete against Apple, Disney, AT&T, and the likes. The transaction resulted in the creation of a new combined entity known as Paramount. You can learn who owns Viacom and CBS here.
While more service providers are entering the market to meet the growing demand for technological solutions, the opportunities for the private sector also grow. To explore data rooms further, you can get more information about the best virtual data room providers focused on private equity here..
3. Increasing interests in niche sector
As mentioned earlier, the competition in the private equity sector has pushed PE firms to think outside the box. Investors don’t want uninvested capital, which is why firms are looking for opportunities in niche sectors rather than competing in high-competition niches like life sciences and technology.
E-commerce logistics, clean energy, and the healthcare technology sector are expected to gain attraction in 2023. Investors and private equities can expect less competition in a niche sector; thus, they have a better chance of scoring more opportunities.
Investing in less competitive niches minimizes not only the risks but also diversifies the investment portfolio.
4. Growing direct investments in public companies
Private equity strategies have remained a go-to investing model for activist investors to invest in public companies for years, and it is not going to change in the near future.
One of the biggest reasons why investors tend to invest in public companies is the increasing number of underperforming and undervalued publicly traded corporations.
5. Direct lending and interest in emerging markets
The recent years in the private equity sector have also seen an increase in direct lending or commonly known as debt funds. Direct lending helps investors generate revenue, reduce risk, and diversify their portfolios.
In addition to that, investors are shifting their focus to less considered markets like Latin America and Asia. You can expect more of this in the years to follow.
The role of virtual data rooms in the private equity sector
A virtual data room or data room software is a digital solution that any business sector, including private equities, can use to exchange, store, and share business data. Dataroom is a cloud-based technology that also provides solutions for safe communication and online due diligence.
Here are some most important benefits of online data room software in the PE sector.
Faster communication
Virtual data room software is a platform where you can add hundreds of users at a time. As data rooms boast all modern-day communication tools, investors, management, and stakeholders use them as a central mode of communication.
Any standard data room software provides audio or video conferencing features, Q&A tools, group communication features, and end-to-end encrypted chat messengers.
Safer and faster fundraising
Virtual data rooms make fundraising simple, safer, and faster for private equity firms. They can make important funding documents like pitchbooks, private placement memorandums, term sheets, lasting power of attorney, etc., easily available to investors.
The data analytics feature in data room software allows firms to track the interest and activities of the investors and thus provide relevant document insights.
Simplified due diligence
More efficient due diligence is easily possible — thanks to the data room due diligence. From preparing and sharing pre-due diligence documents to facilitating real-time communication during the due diligence stage, online data room software has everything dealmakers need for the transactions.
Wrapping up
That said, the most common trends to expect from private equity in 2023 are:
- Stronger competition
- Greater technological advances
- Increasing interests in niche sectors
- Growing direct investments
- Direct lending and growing interests in emerging markets
Data rooms are a top element supporting every stage of a private equity deal. Some of the most notable virtual data room providers for private equities and due diligence include iDeals, DealRoom, FirmRoom, Intralinks, and Merrill.