Deal environment
Survey findings show that GPs are grappling with a complex and unpredictable deal environment. Geopolitical conflict is cited by almost half (49%) of all respondents as a broad macroeconomic factor expected to have one of the biggest influences on the deal environment over the coming 12 to 18 months. “Deal opportunities might be low due to geopolitical conflicts, and we will have to avoid investing in countries that are affected by these,” a North American-based respondent says. “Geopolitics is definitely top of mind on almost all of our deals,” Bolsinger says. “No company will be totally immune to geopolitical change, and GPs are putting in significant amounts of work on tariffs, supply chain and cross-border risk.” EMEA respondents, who are more exposed to risk from the Ukraine and Middle East conflicts, are particularly sensitive to world events, with 65% expecting geopolitical conflicts to shape the future deal environment. Only 30% of APAC-based respondents, however, cite geopolitical conflict as a top deal risk, with relatively weak economic growth a far bigger concern for GPs from the region. The relatively low number of APAC respondents with particular concern for geopolitical risk is somewhat surprising given tense relations between China and the U.S. For North American GPs, meanwhile, supply chain disruption is chosen by the most respondents, reflecting the impact sudden shifts in U.S. cross-border trade and the implementation of higher tariff barriers have had on dealmaking. Sector challenges In terms of industry-specific challenges, 60% of respondents say stabilizing portfolio company costs is one of the biggest issues currently facing the PE asset class. The availability and cost of leverage is also a major concern, according to a majority (58%) of respondents, particularly those based in North America (67%). “The cost of leverage is high, particularly when PE firms are looking to invest in companies in the higher risk category,” a North American GP says. “Risk exposure will have to be carefully selected in order to get funds at a reasonable cost.” Cost leverage will vary according to sector, with businesses in high-performance industries, such as technology, in a position to negotiate better pricing when raising financing.
No company will be totally immune to geopolitical change, and GPs are putting in significant amounts of work on tariffs, supply chain and cross-border risk. Markus Bolsinger Dechert LLP
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