Global Private Equity Report 2019 - Bain & Company

GLOBAL PRIVATE EQUITY REPORT 2019

About Bain & Company's Private Equity business

Bain & Company is the leading consulting partner to the private equity (PE) industry and its stakeholders. PE consulting at Bain has grown eightfold over the past 15 years and now represents about one quarter of the firm's global business. We maintain a global network of more than 1,000 experienced professionals serving PE clients. Our practice is more than triple the size of the next largest consulting company serving PE firms.

Bain's work with PE firms spans fund types, including buyout, infrastructure, real estate and debt. We also work with hedge funds, as well as many of the most prominent institutional investors, including sovereign wealth funds, pension funds, endowments and family investment offices. We support our clients across a broad range of objectives:

Deal generation. We help develop differentiated investment theses and enhance deal flow by profiling industries, screening companies and devising a plan to approach targets.

Due diligence. We help support better deal decisions by performing integrated due diligence to assess the market dynamics, a target's competitive position and margin expansion opportunities, and by providing a post-acquisition agenda.

Immediate post-acquisition. We support the pursuit of rapid returns by developing a strategic valuecreation plan for the acquired company, leading workshops that align management with strategic priorities, and directing focused initiatives or wholesale transformations.

Ongoing value addition. We help increase company value by supporting revenue enhancement and cost reduction and by refreshing strategy.

Exit. We help ensure that funds maximize returns by identifying the optimal exit strategy, preparing the selling documents and prequalifying buyers.

Firm strategy and operations. We help PE firms develop distinctive ways to achieve continued excellence by devising differentiated strategies, maximizing investment capabilities, developing sector specialization and intelligence, enhancing fund-raising, improving organizational design and decision making, and enlisting top talent.

Institutional investor strategy. We help institutional investors develop best-in-class investment programs across asset classes, including private equity, infrastructure and real estate. Topics we address cover asset class allocation, portfolio construction and manager selection, governance and risk management, and organizational design and decision making. We also help institutional investors expand their participation in private equity, including through coinvestment and direct investing opportunities.

Bain & Company, Inc. 131 Dartmouth Street Boston, Massachusetts 02116 USA Tel: +1 617 572 2000

Contents

Global Private Equity Report 2019

The beginning of the rest of the story?. . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 1 1. The private equity market in 2018: What happened?. . . . . . . . . . . . . . . . . . pg. 3

Investments: More strength, same challenges . . . . . . . . . . . . . . . . . . . . . . . pg. 3 Spotlight on China: Navigating the new economy . . . . . . . . . . . . . . . . . . pg. 13 Exits: Strategic buyers keep the party going. . . . . . . . . . . . . . . . . . . . . . . pg. 17 Fund-raising: The capital continues to flow. . . . . . . . . . . . . . . . . . . . . . . . pg. 21 Spotlight on GP equity stakes: Will the bonanza continue?. . . . . . . . . . . . . pg. 27 Returns: Despite a drop, PE still outperforms. . . . . . . . . . . . . . . . . . . . . . . pg. 32 Key takeaways. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 36 2. What's happening now: The strategies shaping private equity in 2019 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 37 Buy-and-build: Powerful strategy, hard to pull off. . . . . . . . . . . . . . . . . . . . pg. 37 Merger integration: Stepping up to the challenge . . . . . . . . . . . . . . . . . . . pg. 46 Adjacency strategy: Taking another shot at diversification . . . . . . . . . . . . . pg. 58 Advanced analytics: Delivering quicker and better insights. . . . . . . . . . . . . pg. 67 3. Private multiples are ascendant: Is this the new normal?. . . . . . . . . . . . . . . pg. 73

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Global Private Equity Report 2019 ii

Global Private Equity Report 2019

The beginning of the rest of the story?

Dear Colleague:

The past five years have been ones of unprecedented success for the private equity industry. During that span, more money has been raised, invested and distributed back to investors than in any other period in the industry's history. Private investment in general, and private equity in particular, seems to be on a secular penetration curve that has no end in sight. Yet, there are also some cautionary notes to sound.

Returns, while still strong relative to other asset classes, have slowly declined toward public market averages during the period. Persistent high prices, volatile capital markets, US?China trade arguments, Brexit worries and, of course, the ever-present threat of recession have injected a sense of uncertainty that dealmakers dislike. The pace of technological change is also increasing in almost every industry, making it harder to forecast winners and losers. So, while the good times are rolling, some bells of worry are tolling.

In this, Bain's 10th-anniversary Global Private Equity Report, we look fearlessly at the industry's strengths, its challenges and the evolutionary path that lies ahead. In addition to the critical statistics that characterize PE industry performance, you'll find our assessment of how to do "buy-and-builds" properly and why this tactic is increasing in popularity. Building on last year's assertion that PE firms need to increase their 10% share of the approximately 40,000 M&A deals done globally each year, we discuss how firms are building merger integration muscles to better compete with corporate buyers, and why the integration process should begin during due diligence. We also take a hard look at adjacency strategy 2.0 and the new wave of equity products that many PE firms are moving into aggressively, hoping to find higher returns and more productive ways to invest capital at scale.

In addition, we zero in on exciting topics such as advanced analytics, which speeds insight in both diligence and post-close value addition; liquidity solutions for general partners; and the Chinese PE market, which is on the leading edge in areas like technology.

We close our 2019 review of important trends in private equity by getting out our crystal ball. It's a bit cloudy (as is everyone's), but we see fundamental shifts happening in capital markets that are likely to drive a long-term trend toward much larger private capital (and private equity) opportunities vs. traditional public equity models. This ongoing movement will have seismic impacts for providers of capital, investors of that capital and for the companies owned by a widening variety of private models. It portends a future in which a much larger share of capital flows into private markets. Perhaps this is indeed the beginning of "the rest of the story" for the PE industry.

Hugh MacArthur Head of Global Private Equity

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