With the strong growth of microfinance in emerging markets, private equity could see an opportunity in this emerging space.

Emerging Markets

Opalesque, in its recent Private Equity Strategies report, highlights a host of developments and opportunities in the PE space including opportunities in microlending.

Private equity witnesses emerging markets play

Opalesque’s recent report starts off by highlighting the opportunity in microlending space. The report points out emerging markets are forecasted to offer almost half of the macroeconomic growth worldwide over the next year, and in many cases that growth is directly tied to microfinance loans.

The report highlights that as a group, microfinance lenders have been expanding, but until recently were largely off the radar of firms in the developed markets. The report notes a few private equity funds have been involved in microfinance for many years, but others, already familiar with specialty finance and lending are starting to take a look as microfinance loan books continue to grow.

The report points out the push-pull between commercial lenders and microfinance organizations can also be an opportunity for private capital. For instance, the report highlights WestBridge Ventures II just enhanced its stake in Indian-microlender SKS, buying out Sequoia Capital’s interest. Though SKS Microfinance is the only listed microlender in India, the other funding rounds for private microlenders in India have also been successful

Highlighting the interview with Mary Ellen Iskenderian, President and CEO of Women’s World Banking, Opalesque report points out that Women’s World Banking has recently partnered with Nigeria’s Diamond Bank to offer microfinance products in addition to their traditional retail banking offerings.

Crowded lower middle market

Opalesque’s recent report also points out that sellers in the lower middle markets are starting to get more optimistic, but potential buyers are still remaining cautious. Carrying the interview with Dave Moylan, Operating Partner and COO at Yennai Capital, the report highlights that the lower middle market is starting to get crowded as more funds look for ways to deploy capital, and still find high quality companies. As a result, players in the space are starting to see valuations tick up, but potential headwinds like Fed tapering could make those valuations more expensive.

In his interview, Dave Moylan points out that bigger funds are starting to look at this part of the market, and one could see this getting reflected in the valuations.

Opalesque’s recent report also touches upon some of the recent regulatory happenings in the private equity space. For instance, the report points that out during the recent M&A Symposium at Mergermarket, a panelist cited the slow pace of Dodd-Frank implementation is keeping capital that could go into PE on the sidelines.

The report also highlights the recent Accruent transaction and opportunities for growth equity firms in the technology sector.