Private equity fund managers are looking to act conservatively in the coming year as investors continue to fret about the economy, according to a new survey by BDO USA.
Ninety-five percent of the PE firms surveyed by BDO plan to close five deals or less in 2016, and investment levels are similarly conservative, with 93 percent of fund managers expecting to invest $250 million or less in the coming year.
Sixty-five percent of those surveyed believe the international environment will be favorable for PE firms looking to invest in 2016, but only 35 percent of respondents anticipate pursuing more cross-border transactions this year.
The study found that Europe-based managers have a more optimistic outlook for the private equity investment environment. While 64 percent of the U.S. managers surveyed describe the current investment environment in their country as favorable, close to 88 percent of the European respondents see the current investment climate as favorable.
European fund managers also expect more cross-border activity in the coming year when compared to their American counterparts.
Industry specialization and personal relationships are an important part of deals. A 57 percent majority of PE leaders said they specialize in an industry or region in order to identify and successfully execute deals, using their capital to focus on key industries and markets.
The technology and healthcare sectors are expected to experience increased valuations. With 65 percent of fund managers predicting the tech sector will experience increased valuations in the coming year, while 63 percent cite the healthcare/biotech sector.
"While PE interest in some healthcare segments, such as hospital and inpatient services, has been tempered up to this point, PE funds continue to be active in specialty areas such as behavioral health, dermatology and pain management, where they can leverage their operational expertise through a buy-and-build strategy and scale," said Patrick Pilch, managing director and healthcare advisory practice leader with the BDO Center for Healthcare Excellence & Innovation.
Close to one-third of those surveyed said the manufacturing sector will generate the greatest opportunity for investment in the next 12 months. While the manufacturing sector in the U.S. has suffered from lagging exports due to a strong U.S. dollar and weak demand for durable goods, investors see opportunity thanks to the low cost of energy in the United States.