Value Creation
As businesses around the world continue to manage the fallout of COVID-19, having a value creation plan has never been more important.
Investment continues to flow into private markets. In the wake of COVID-19, however, private markets managers face challenging economic conditions and a more complex definition of what constitutes value. As private markets come to make up an increasing proportion of the global capital markets, the sector is also becoming more regulated and scrutinised than ever before. How can you reconfigure your value creation playbook to outperform in this tough environment? You’ll need a strategy that focuses more closely on strategic positioning, operational excellence and capital efficiency in your business and the portfolios you manage.
Will Jackson Moore, PwC's Global Private Equity, Real Estate, and Sovereign Funds Leader, talks us through the outlook for private markets and the new private markets playbook, including focus on ESG.
Downturns can increase opportunities for private markets managers, particularly when it comes to acquiring companies, infrastructure or real estate assets at reduced cost.
But these openings might not be enough on their own to help managers deliver target returns. COVID-19 has upended economies in broad ways and entry multiples are high. So, managers need to find other ways to boost returns and create new types of value.
There’s evidence from the last global recession that dedicating resources to value creation pays off. Private equity firms with value creation teams experienced a better rate of return during the recession than those without dedicated teams.
Private equity is the ‘asset class of the moment,’ as opportunities for acquisition and corporate turnaround increase. Strong fundraising has heightened pressure to put dry powder to work and has therefore inflated valuations. The challenges will have managers looking for new ways to create value, including through ESG.
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COVID-19 has effected little change in some subsectors of infrastructure, such as energy, but it has caused sharp decreases in revenue from once-stable sources of return such as airports. Some assets, such as fibre optics, are now moving into the central core.
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COVID-19 has reduced retail footfall and led to widespread deferment of rental income. In the longer term, the pandemic is likely to accelerate remote work and online shopping, potentially leading to a rise in empty office and retail space. However, investment and growth potential remain strong.
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Nonbank lending expanded rapidly after the global recession of 2008–09 and now exceeds bank lending in advanced economies, even in Europe. The largest capital deployment opportunities are likely to be in rescue financing, real estate, infrastructure and direct lending.
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You’ll want to go beyond a few small tweaks to your playbook in order to respond sufficiently to the changing value ecosystem. Here are some of the moves we think you’ll need to make. Download our report (PDF) (file size: 1.6 MB) for full details.
Deliver a plan for how you’ll navigate the new value ecosystem
Make sure you have the talent you’ll need
Use technology to gain a competitive advantage
Pick your spot—specialise or diversify?
As businesses around the world continue to manage the fallout of COVID-19, having a value creation plan has never been more important.
The infrastructure sector sits at a collision point of global disruptions, including shifts in capital availability, evolving social and environmental priorities, and rapid urbanisation.
Eric Janson
Global Private Equity, Real Assets and Sovereign Funds Leader, Partner, PwC United States
Tel: +1 617-834-4900
