Why Efficient Cost Management Takes Center Stage for Private Equity Amid Rising Interest Rates — and What to Do About It…
An Era of ‘Easy Money’ is in the rearview mirror. It’s not coming back anytime soon. Time to adjust to that fact. If you are a Private Equity Sponsor, a Family Office, or a Limited Partner in the PE space, you need to understand what the playbook for success looks like for the next era — where money is no longer ‘free’.
The economic landscape that private equity sponsors face has shifted considerably over the last two years. For most of the last decade, the PE industry operated with the benefit of low interest rates coupled with a booming economy. In this environment, businesses with the potential for top-line growth found easy access to both equity and debt capital.
However — since early 2022, inflation spiked and the Federal Reserve embarked on an aggressive program of rate hikes. Following this action, the cost of debt capital increased substantially, meaningfully altering the economic benefits of larger leveraged buyout transactions.
In this new era of expensive capital, the emphasis has shifted from new capital infusion and rapid growth to smart portfolio company spend management and bottom-line performance. PE sponsors are now required to have an even more discerning eye on every single dollar invested.
There are tactics that you can employ to be successful in this new era, but you need to alter your strategy.
Learn more about the Playbook for this new era of higher interest rates.
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