The global private equity industry is sitting on $1.5 trillion in cash which poses both a set of challenges and opportunities.
Industry Is Feeling Good
2019 was a busy year for the private equity industry who oversaw $450 billion worth of deals, Bloomberg said in an early January report. Looking forward to 2020, this figure could rise higher as the economic and geopolitical outlook looks more favorable compared to the same time last year.
Private equity firms are also waiting to take advantage of new opportunities that are slowly presenting themselves. For example, new asset classes like private credit or regions like Japan are only now opening up to new capital flows.
Shift In Strategy
Stock markets throughout the world continue to hover near historical all-time high which makes it difficult to find compelling and attractive investments at current levels, Bain Capital Co-Chairman Stephen Pagliuca told CNBC in a Thursday interview from the sidelines of the World Economic Forum. This forces private equity giants to shift their strategies and seek out smaller companies that may otherwise fly under the radar.
Pagliuca said his private equity firm is backed by expert consultants who offer a lending hand and help small companies grow in size with the objective of expanding globally. Simply counting on multiple expansion to generate a return is no longer a viable strategy for the industry.
One of the biggest misconceptions about the private equity industry is that major firms achieve their profits through cost-cutting measures. No one has any interest in buying part of a company that is shrinking in size or needs to be shrunk.
In fact, Bain Capital alone is responsible for creating more than 1 million jobs through its investments in companies, he said.
Canada Goose: A Success Story
Canada Goose is a maker of apparel meant for the cold Canadian winters. The company accepted an investment from Bain Capital and became a public company in 2017. Pagliuca recounted how he recognized the company’s potential to sell beyond Canada. Today the company even sells in China and its remarkable growth over the past few years helped Canada Goose evolve from a $300 million company to $3 billion.
The company also makes a product that is long-lasting and could keep consumers warm for decades. Some investors may look at this as a problem for the business model as it discourages repeat purchases. But Pagliuca said he doesn’t see it that way and pointed out Canada Goose has such a low market penetration rate.
In addition, Canada Goose continues to evolve its product line from a core jacket company to sweaters, boots, and other verticals.