TORONTO – BUSINESS – Now that we’re halfway through 2024, we can begin to gain a clearer picture of how the year will shape up for investors in the private equity market. To shed some light on the performance and future prospects of the sector, we spoke with CEO Mark Litwin of Toronto-based private equity firm Marrisa Holdings.
“Any predictions for the market have to begin with the recent lowering of interest rates, making capital less expensive than it’s been for over a year and a half,” says Litwin. He points out that despite the recent cut to 4.75%, interest rates still remain significantly high, creating a complex environment for investors.
The continued high cost of capital has revealed certain institutional weaknesses across various sectors, but Litwin sees signs of light through the cracks. “This has exposed opportunities for partnerships with asset-rich companies within industries with high growth potential,” he explains. “These are the kinds of circumstances that activate our entrepreneurial instincts and open new avenues for collaboration.”
Litwin says his firm is focused on identifying and capitalizing on these opportunities. As CEO, he frequently emphasizes the importance of agility. “We’ll continue to see shifts in the types of investments being favoured across the market, and we’ll maintain the agility to react to that.” He’s built a track record of investing in businesses that generate stable cash flows with lower sensitivity to interest rate changes.
Litwin’s particular expertise in the real estate market shapes his perspective on the current investment climate. “There will continue to be opportunities created in this environment with firms going through a restructuring process. These bifurcations will require the expertise of firms like ours that offer years of strategic planning as guidance.
High interest rates continue to influence deal structuring significantly. With borrowing costs high, debt remains less appealing compared to the era of near-zero interest rates. This results in conservative debt structures and lower leverage ratios to mitigate risk.
When asked about sectors that remain attractive despite the economic climate, Litwin identifies healthcare, technology, and essential consumer goods as resilient areas. “These sectors are less cyclical and more resistant to economic downturns,” he says. However, success in these investments hinges on rigorous due diligence, talent assessment, and accurate asset valuation. “I think the satisfaction of getting that process right is why a lot of us got into this business in the first place,” says Litwin.
High interest rates also affect exit strategies for private equity firms. “The exit environment is always more challenging with higher rates,” Litwin acknowledges. The lowered rates will increase valuations, improving the chances of meeting goals for returns.
Mark Litwin’s insights help us to develop a more accurate forecast for the private equity market’s trajectory. Despite the continued challenges posed by high interest rates, there remain abundant opportunities for savvy investors who are willing to adapt and diversify.
