Pension plans with an exposure to private equity should benefit from increased liquidity in those investments, as private equity exits are expected to increase in 2011, according to Ernst & Young.
“In Canada, private equity’s comeback in 2010 proved its ability to adapt to a changing economic environment,” says Joe Telebar, transactions advisory services partner, with Ernst & Young. “This year, we expect to see the return of targeted deal activity as the tailwinds of 2010 propel leading companies back into the market.”
The recession encouraged corporate thrift with a focus on shoring up balance sheets. Now laden with cash, many companies are looking to make a strategic acquisition. According to Ernst & Young, 54% of global companies are interested in making an acquisition.
This gives private equity firms improved pricing power as they are no longer seeking to simply unload underperforming assets.
“In Canada, the M&A outlook is optimistic as renewed confidence replaces the old concerns that prevented companies from entering the market,” said Telebar. “Now, as some of PE’s highest profile buyouts from 2006 and 2007 are on the ‘auction block,’ we anticipate an increase in PE-backed listings.”
Privately held companies are usually smaller and nimbler than corporate competitors, or occupy a niche within a given market. This makes them especially attractive to companies that are planning strategic acquisitions.