Where private-equity firms are looking for high growth


By Sabine Vollmer

At a time when sovereign debt crises are slowing GDP growth around the world, private-equity firms are on the hunt for untapped high-growth opportunities. A worldwide survey conducted by Grant Thornton International identified where top private-equity executives expected to invest more in the next year:

  • Middle Eastern and North African countries were among the most favored. Sixty per cent of the 143 executives said they expected to invest more in the MENA region.

  • Fifty-nine per cent of respondents said they expected to invest more in North America, and nobody expected to decrease investment activity in the region.

  • Indonesia, Russia and Australia were attractive to Chinese and Indian private-equity firms. 

  • Countries off the beaten path that private-equity executives considered “frontier markets” included Myanmar and Malaysia in Southeast Asia; Ghana and Tanzania in Africa; Peru and Colombia in Latin America; and Turkey.

The industries projected to see the most activity were health care (19%) and business services (15%). Interest in the consumer products sector decreased three percentage points from the year before, but was still high at 19%, according to the survey, which conducted interviews between July and September.

Slow economies, slow flow

Executives expected deal flow to be sluggish in countries and regions where economic growth was slowing or absent.

Only 27% of respondents said they would increase investments in western Europe, down from 50% last year. India and China have also become a lot less attractiveness in the past year. Fifty-six per cent of respondents said they plan to reduce their investments in China, up from 25% a year earlier. And 45% of respondents plan to invest less in India, a market everybody wanted to get into or stay in a year earlier.

Private-equity firms are also more cautious about investing in Latin American countries. Of the executives polled, 78% expected to increase their activity in the region, down from 89% a year ago.

Debt crises in the US and the euro zone and the rise of developing economies are among the key drivers behind the private-equity industry’s global search for growth.

But today, debt leverage and financial engineering are no longer enough to generate adequate returns for private-equity investors, said Martin Goddard, Grant Thornton International’s global service line leader for transactions. Private-equity firms have realized that they “need to make investments which will achieve high returns, and they need to add value to their investments by the provision of hands-on advice and support,” Goddard said.

Related CGMA Magazine content:

Rapid-Growth Investment Opportunities to Research During the Lull in M&A Activity”: While companies are waiting for the global economic climate to stabilise, they have time to look around for rapid-growth markets that might offer similar or better opportunities than China once their appetite for mergers and acquisitions returns. Ernst & Young’s M&A Maturity Index highlights some unexpected candidates.

Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.