Private Equity Expectations Remain High to Close out 2022

by Matthew Ayers, Jen Gomez and David Portney
Stiles Associates

Now that the summer season has come to a close and the fourth quarter is around the corner, private equity is making a comeback after a modest dip in the first half of the year. According to Bain Capital’s Midyear Private Equity Report, Q2 PE deals slowed as increased uncertainty about inflation and geopolitics took hold around the globe. However, while these external reasons certainly played a role, it doesn’t tell the whole story – and we don’t believe the slowdown will last into the fourth quarter.

To understand why Q2 didn’t perhaps meet expectations, we must zoom out and look at the big picture. The last several years have seen record growth in the space, and with that came intense pressure to acquire and transform companies from around the world. So, while external factors like stock market unease, rising inflation and foreign conflicts may have been the catalyst, PE leaders simply needed a break this summer; burnout is real even among the hardest workers. We saw numerous examples of much-needed and long overdue vacations being taken to recharge the batteries for a strong finish to the year. Now that we’re over the Labor Day hump, the summer swoon is likely over.

Private Equity firms have plenty of cash at their disposal and likely don’t intend to sit on it, barring the aforementioned factors becoming worse or something additional enters the equation. Those previously taking time off have increased engagement with executive search firms like ours to help them find top talent for their firms and portfolio companies. We’ve noticed retained recruiting firms serve as lagging indicators on how the PE sector is doing as a whole, so once we start seeing PE searches ramp up, a boom quickly follows.

Now that the sector is seemingly back in full swing, there are a couple trends to keep an eye on as we forge toward the end of 2022:

• Roll-up companies could see an acceleration if marketplace uncertainties remain. As smaller companies feel the pressures of higher inflation and a full-throated recession, expect larger entities to swoop in and acquire them for their portfolios. We’re seeing a lot of activity in this part of private equity, and that could slow down or pick up depending on the marketplace at large.
  
  
• The hiring demand for supply chain, operations, plant and Lean managers remains red hot. This is nothing new and probably won’t surprise anyone reading this, but we’re seeing an absolute relentless demand for these roles, especially Directors of Operations. Many A-level Director of Ops. have already been scooped up, forcing companies to consider Senior Manager level operations leaders for those opportunities. However, many hiring managers don’t view those individuals at the Director level, putting them in a precarious position of either compromising on their requirements or reconsidering the role altogether.