Private equity is sitting astride a mountain of dry powder, which currently stands at USD1.14 trillion according to Preqin*. Fund raising has never been easier but with so much money floating around, valuations are being driven upwards.
This is placing enormous importance on private equity managers planning for exits. How can they be sure that the target company will continue to grow and generate an attractive earnings multiple at exit when the valuation is already high at entry?
“The multiples being asked for right now are exorbitant; it used to be common to pay 10 or 11X EBITDA but in some sectors this has risen to levels well above that. It places a lot of emphasis on value creation. PE managers are hiring professionals from a wide range of backgrounds to go in, fix up the operations of their target companies, increase operational efficiency, and thereafter plan for the exit. The exit phase has never been so important as it is right now, and it’s just going to continue to evolve,” explains Robert Kimmels (pictured), Managing Director, PraxisIFM Luxembourg SA.
PraxisIFM is an independent group of companies providing a range of financial services including fund formation, transfer agent and administration services. The Group is listed on The International Stock Exchange and is majority-owned by senior management.
“Our role as a fund administrator is to aid fund managers by allowing them to focus on the value creation while we manage the fund’s administrative operations as they work towards an optimal exit. The key aspects to this are the quality of our work, the efficiency and speed with which we deliver requested documents/reports, in terms of the fund’s operations, and keeping the fund in compliance with all of the regulatory requirements,” continues Kimmels.
In the current climate, where sourcing and originating the right deals is key, PE managers need a strong partner to handle all of the non-investment, operational aspects of their fund while they concentrate on generating value in each of the portfolio’s underlying investee companies.
“Our role has become more important than ever before,” says Kimmels.
“Praxis’s value-add is the speed and the quality of the financial reporting we produce and general deal support for our fund manager clients. Both acquisitions and exits usually have a critical timeframe. Every element of a deal’s lifecycle requires coordination between board, GPs, LPs and /or fund managers who have to be certain they have the right documentation and reporting when and where they need it. The speed to react to clients in this environment is vital and something we focus our efforts on.”
Smaller and mid-sized PE managers are looking to create operational and cost-efficiency in the fund structures to benefit their end investors. “In the rapidly evolving regulatory and legal environment for PE investments, these managers often find it simpler and more effective to have an administrator to help them comply,” says Kimmels.
This requires finding a fund administrator with the right cultural fit who they know can support them every step of the way.
“We understand the difficulties of deal execution and value creation; decisions have to be made fast. As a company we retained our staff ownership model so quick decision-making is definitely a competitive advantage that Praxis provides to our clients,” concludes Kimmels. n
Praxis Luxembourg SA is supervised by the Commission de Surveillance du Secteur Financier.