The new year will bring gradual but significant changes in the world of private equity, with experts predicting a solid but not particularly strong year of deal-making in 2016 as the sector begins to transform.
On some fronts, changes have already been set in motion, with the last few years seeing an increase in both alternative financing and co-investment deals, but consequential changes are on the horizon in other areas, and traditional private equity firms are in the process of morphing to keep up with the times, experts say.
Here, Law360 looks at seven trends that will push private equity toward a new normal in 2016.
Continued Reliance on Longer Holds
Traditionally, private equity firms have raised funds with a 10-year life span and five-year investment hold period, but attorneys anticipate that 2016 will bring a continuation of what some of the bigger firms began exploring a couple of years back: raising funds that go beyond those customary holds and allowing private equity groups to buy and hold portfolio companies for longer.
Howard Berkower, a partner with the corporate practice at McCarter & English LLP, said the longer hold period is a result of multiple factors, including the desire to properly turn a company around so that when it’s time to sell the company’s value is the highest it can be.
“It has become harder for private equity companies to get the targeted internal rate of returns they are seeking,” he said. “So you typically have to hold onto the asset for a longer period of time.”