The long drought in private equity deals has investors asking to see cash returns, says Goldman Sachs’ co-head of private equity.
Michael Bruun, the global co-head of Goldman Sachs’ $US186 billion private equity franchise, says investors in the sector are sending a clear message to firms: show me the money.
But the new focus in the industry is on a metric called DPI, which is shorthand for distributed to paid-in capital. In layman’s terms,Private equity exits fell 25 per cent from 2022 to 2023 to $US574 billion, which inevitably flowed through to the amount of cash returned to investors. But he argues pressure to improve DPI is a key reason to expect the deal drought to start to ease this year – more private equity firms will simply need to do deals to be able to return cash to their LPs.
Third, Bruun says Goldman Sachs’ private equity arm has a strong track record in exiting investments via trade sales, which he expects should hold up reasonably well in the recovering deal environment. Bruun and his team very deliberately tap this network to support portfolio companies by finding potential customers, deepening supplier relationships and, as you would expect from one of the world’s biggest investment banks, finding both potential acquisitions targets and potential acquirers.Goldman Sachs’ recent acquisition of a Norwegian education technology group called Kahoot, which was taken private in January for about $US2 billion, is a good example of this.
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