Posted by: Yaacov Yisraeli, senior partner: 
The world economic crisis is not over yet, although it has already left different effects in different locations. In July 2010, one can safely indicate several general conclusions concerning changes in the Private Equity industry.
- Mega deals – belong to history
Shortage of financing, loss of confidence among investors and lending institutions, fear from long term engagement and other reasons convinced today’s investors to focus on mid-size and small deals.
- No flips, no quick exits
For all the above reasons, and others, such as the negative effect created on the stock markets around the world, more attention is already being paid to working with the portfolio companies in a serious and professional effort to increase their value. That means that the private equity staff shall need to be less general in their approach, more specialized, their professional staff will have to spend more time with their portfolio companies in the attempt to increase their value. Once the IPO market opens up again one may expect to be faced with a new brand of investors, who ask for more, who are more choosy, hesitant, and much more demanding.
- More regulatory demands
As already noted in the US and to a lesser extent in some European countries, one may expect more regulatory demand, primarily directed at public companies, but some of which may have an effect over management conduct in private companies as well. That may raise the risk level of directors and officers, lead to the adoption of more detailed compliance programs and may require additional legal counsel and assistance and inflict additional cost on the company.
- Changes in the exit strategies
The depressed IPO’s market, as already mentioned, forces private equity investors to think harder and earlier about their exit strategy in each particular case. Some of the markets either remain reasonably active (in some of the Asian capitals for example) or become reasonably active again recently, and that still presents for an exit opportunity. However one may expect that such market which became active again shall behave differently. The institutional investors are expected to be more cautious and more demanding. They will be questioning more the company’s potential and they will be pushing hard the price per share down. Other potential exits may rarely include holding companies buying just for the sake of enlarging their portfolios, as was often the case in the past. Under the new circumstances a purchase of a portfolio company may still be expected by another company or a group of companies for commercial reasons (such as buying complementary technology or line of products, easing on competition, or for other strategic reasons. As already mentioned, one should be prepared to stay with the company for a longer period of time and invest more in raising its value, before one contemplates an exit.
Due to the above described slow down and changes concerning exits, it is expected that private equity as well as other investors, when checking new investment opportunities, will be looking harder for profitability of each potential portfolio company and its capability to steadily distribute dividends, bearing in mind the longer exit time and the anticipated pressure of its own investors.
