Pete Witte, EY Global Private Equity Lead Analyst, explores the key themes and market dynamics from 1Q 2022 that are top of mind for PE investors. PE Pulse is a quarterly report and corresponding podcast miniseries that provides analysis and insights on private equity market activity and trends. Visit https://www.ey.com/pepulse to view this quarter’s summary and infographic.   Five takeaways from 1Q 2022: The macroeconomic environment is top of mind for investors as uncertainty impacts growth, inflation and interest rates PE deal activity decreases 27% from 1Q 2021: despite a softening in activity from the breakneck pace of last year, this level of activity is still quite robust Geopolitical uncertainty: PE firms are using the same playbook they used during the COVID-19 pandemic to manage the impact from the war in Ukraine PE exit activity decreases 60% by value from 1Q21: PE will continue to do what they have always done, which is execute on strategy and look to exit when conditions are more amenable Secondaries market reaches new heights: GP-led deals are key drivers of this trend, as they providing optionality for LPs    

Greg Schooley, EY-Parthenon US Value Creation Leader, joins Winna Brown to discuss what tasks PE is outsourcing across business functions such as finance, IT, HR and customer service to create value. The path to successful value creation in private equity (PE) today goes beyond typical levers such as G&A cost-cutting, sales force effectiveness and strategic sourcing. It’s about an approach that leverages digital tools including automation, strategic outsourcing and advanced analytics. Going forward, PE-owned companies of all sizes may need to look at outsourcing as a way to access cutting-edge technologies and capabilities that can lead to revenue growth opportunities, in addition to reducing costs.

Danny Warshay, Executive Director of the Nelson Center for Entrepreneurship at Brown University, explores how the “See, Solve, Scale” entrepreneurial process can help PE investors screen potential investments. Partnering with a private equity (PE) firm has become especially attractive for founders of lower and middle market companies that aim for transformational, sustainable growth. As active and engaged investors, PE brings not only capital, but specialized industry expertise and experience, and generally a large network of professionals and operating resources. But to which entrepreneurs and founders is private capital flowing and what factors are influencing those investment decisions? Danny Warshay is the Executive Director of the Nelson Center for Entrepreneurship at Brown University in Providence, Rhode Island, and author of “See, Solve, Scale: How Anyone Can Turn an Unsolved Problem into a Breakthrough Success.” Danny asserts that much of the same “See, Solve, Scale” process that has empowered so many entrepreneurs can also be helpful to investors as a screen for potential investments. The episode also explores how the legacy culture, bias and ways of doing business in PE can shape investment decisions and cause investors to overlook promising opportunities and entrepreneurs. Entrepreneurs should keep three things in mind when seeking to raise private capital: Seek to fix problems that actually exist rather than be “a solution in search of a problem.” Having abundant resources can burden the entrepreneurial process, while scarce resources can actually be beneficial. Aspire for diversity among founders, management teams and investment teams because diverse teams are better positioned for success.

Pam Jackson, CEO of Level20, joins Winna Brown to reveal how mentorship programs can help women build long-term careers in PE.  According to a report that EY teams recently published on diversity, equity and inclusiveness (DEI), the private equity industry’s ability to meet stakeholder demands, access capital, win deals and compete for talent is increasingly contingent on progress against DEI metrics. Talent management has become the number two strategic priority across PE firms of all sizes, second only to asset growth. DEI initiatives are now proliferating in private equity as the industry begins to address how its culture has historically impeded diversity. Level20 is a non-profit organization based in the UK that is dedicated to improving gender diversity in the European PE industry and specifically in senior leadership roles at PE firms.  Read “Can PE win deals if it doesn’t deal with DEI?”: https://www.ey.com/en_gl/private-equity/can-pe-win-deals-if-it-doesn-t-deal-with-dei Calculate how long it will take to achieve your diversity goals: https://kenaninstitute.unc.edu/diversity-integration-model/ Ten ways male PE leaders can support and mentor their female colleagues: Serve as role models and mentors Engage with colleagues who are different from yourself Encourage women to realize their value Promote stories of inspiring women Engage in small interventions Embody inclusive leadership Give cultural shifts time to come to fruition Build a diverse talent pipeline from the bottom over time Recognize that recruiting senior women is not a “quick win” Model how long it will take to achieve your diversity goals with the EY Diversity Integration Model

In this episode, Laura Grattan, Managing Director at Crosspoint Capital, and Jeff Vogel, Head of the Software Strategy Group at EY-Parthenon, join Winna Brown to explore how PE firms can position themselves to win tech deals in today’s highly competitive market. Contact Laura: lgrattan@crosspointcapital.com Contact Jeff: jeffrey.vogel@parthenon.ey.com According to the latest EY PE Pulse report, 2021 was the year of the tech deal: 30% of total capital deployed last year was allocated to technology companies. The technology sector, once just another industry vertical, now permeates every sector, claiming an ever-increasing share of deals as more companies differentiate themselves based on their technology regardless of the industry in which they sit or serve. Crosspoint Capital focuses on the cybersecurity, privacy and infrastructure software sectors. PE firms that choose a niche specialization in the tech sector can bring deep sector expertise that translates to value creation for their portfolio companies. In an increasingly competitive tech environment, PE firms that focus on a highly targeted category of assets can find themselves in a differentiated position. They are able to quickly discern where to spend time, recognize the opportunities and limitations of an asset, and identify patterns indicative of future success. Three characteristics of today’s tech deal environment include: Increasing presence of and need for club deals Increasing speed at which deals are clearing Developing deal theses early

Pete Witte, EY Global Private Equity Lead Analyst, explores the key themes and market dynamics from 4Q 2021 that are top of mind for PE investors. PE Pulse is a quarterly report and corresponding podcast miniseries that provides analysis and insights on private equity market activity and trends. Visit https://www.ey.com/pepulse to view this quarter’s summary and infographic.   Five takeaways from 4Q 2021: 2021 was a year for the record books for private equity (PE) firms, with investment activity surpassing the trillion-dollar mark for the first time. 30% of the total capital deployed in 2021 was allocated to technology companies, followed by firms in the consumer space, which saw 24% of aggregate deals by value. Growth equity funds raised US$102b throughout the year, up 53% from 2020 and up 74% from the average raised for growth funds over five years prior. PE exits saw record activity levels in 2021, with value and volume seeing increases of 107% and 56%, respectively. If 2021 will be remembered for anything, it will be the way that ESG and issues of sustainability catapulted to the top of PE firms’ agendas, driven by broad recognition that it’s the right thing to do and pressure from the whole gamut of PE’s stakeholder groups.

In this episode, Nic Humphries, Senior Partner and Executive Chairman of Hg, joins Winna Brown to explore how Hg’s philosophy of curiosity and experimentation has enabled it to become one of the most active technology investors in the world. Contact Nic: Hg@hgcapital.com  As an early adopter of artificial intelligence (AI), machine learning and analytics, Hg has embraced an investment and organizational philosophy of curiosity and experimentation that has enabled it to become one of the most active technology investors in the world.   In this episode, Winna and Nic explore: Why AI and machine learning are a lead indicator and differentiator of Hg’s market position How AI has increased the sophistication of Hg’s origination process Where AI has made transformative impacts in the portfolio Why AI has caused job creation and retention rather than attrition How AI will drive the investment landscape moving forward Why people skills will remain vital in PE despite the increasing presence of AI and data analytics 4 areas where AI can create and unlock value in PE include: Churn propensity modeling Upsell and cross-sell modeling Target identification and origination Predictive analytics across the portfolio

In this episode, Tyler Brewster, Senior Director at EY-Parthenon, joins Winna Brown to reveal the drivers behind PE’s increasing presence in pro sports and explore both the opportunities and risks for investors. Contact Tyler: tyler.brewster@parthenon.ey.com Private equity (PE) is now undeniably present in the world of professional sports. According to Pitchbook, over the past 18 months, PE firms have taken on passive stakes in professional sports franchises and leagues after the NBA, MLB and Major League Soccer loosened ownership rules to include institutional investors. In addition, funds focused on sports have begun to emerge. According to Pitchbook, the total value of PE investments in sports teams and leagues has doubled in the past three years from US$3.3b in 2018 to US$7.1b in 2021. This episode dives into the current drivers, opportunities and risks shaping PE’s presence in the sports industry. We discuss why this is an attractive industry for investors, the opportunities for continued growth such as media rights, asset diversification, and digital transformation, as well as the reputational risks and considerations for PE as it steps into the sports industry spotlight.

Tricia Glynn, a Partner at Advent International, shares best practices from Advent’s renowned DEI program and discusses how private equity (PE) firms can build an inclusive culture and incorporate diversity, equity and inclusion (DEI) into their value creation thesis. Tricia has been a PE investor for over 20 years and currently serves on boards such as Lululemon and Olaplex, and co-leads Advent’s North American Retail, Consumer and Leisure sector team.  To read EY's new report on DEI in PE, visit ey.com/privateequity. DEI is not PE’s strength. According to Preqin’s Women in Alternative Assets report, only one-fifth of industry employees and 12.2% of senior roles were female in 2020. The situation for underrepresented minorities in the industry is dismal, with only 2% Hispanic and 1% Black venture capital (VC) investors in the US (Gompers and Kovvali, 2018). As of December 2020, nearly 50 buyout firms and investors had signed a global initiative launched by the Institutional Limited Partners Association (ILPA) to improve diversity among their ranks; a substantive and public step in the right direction, but as Tricia says: "The industry has a long way to go.” A PE talent strategy must incorporate a proactive approach to DEI with a strong tone set “from the top,” ensuring diverse employees feel wanted, valued and sponsored. Incorporating a comprehensive DEI strategy addresses a firm’s commitment to elevating society while expanding its talent pool and creating new perspectives in investing. Advent views DEI as foundational to its business model, competitive positioning and talent strategy so it can be both the chosen buyer and chosen employer. Five things PE can do to build DEI companies and cultures include: Find, engage and learn from DEI experts in your network. Hire experts (i.e., advisors, academic researchers) who understand your industry and know how to drive DEI culture. Track data to identify your biggest problems, determine where you want to drive change and hold yourself accountable. Give permission to speak openly: fear of “saying the wrong thing” holds leaders back from engaging in DEI so allowing well-intentioned people to learn in real time is important. Hold everyone in the organization accountable.

Entrepreneurs and companies seeking investment may find a family office (FO) a compelling alternative to private equity (PE). According to Preqin, family office deals currently represent 2.5% of total M&A deals, a small share but one that has been steadily increasing since the great financial crisis. The Economist estimates family offices manage assets worth an estimated US$4 trillion, with individual offices averaging $500 million to $1 billion in AUM according to Forbes. Our guest is Katherine Hill Ritchie, Director and Board Member of Nottingham Spirk, a 50-year-old innovation firm with a family office. Katherine has 18 years of finance, investing and family office experience and started her own firm working with family offices and alternative investment funds and companies. Katherine is also an Angel Investor and advisor who supports and invests in female and diverse founded venture capital funds and companies and is on the board of several organizations. She has spoken at over 100 global investment conferences, lectured at universities, and was recently awarded a lifetime achievement award for her family office work. Contact Katherine: KHillRitchie@nottinghamspirk.com 8 things companies should know about FOs: FOs can and do compete with PE for direct investments. FO fund structure, investment thesis, acquisition requirements, portfolio and shareholder mix are frequently opaque. FOs have flexibility to change their focus. FOs are not beholden to a 7-10-year exit timeline. IPO is not always the exit strategy for a FO. FOs don’t face the same regulatory requirements as funds. FOs may or may not care about ESG requirements for their investments. Companies must build relationships with FOs to ensure alignment of objectives.