Week in Review: The Future, Software and Distressed Investing

“The future ain’t what it used to be” – Yogi Berra.

Yes Mr. Berra, a new future is indeed emerging. At least for private equity investing. Last week questions arose about how firms would begin to reposition their strategic interests as performance expectations evolve. Deal sizes are shrinking as total deal volume increases. And, distressed investors Bill Ackman and Mark Patterson gave away some of their strategies for getting the right deals. A solid week following a relaxing holiday.

Below are the four articles from last week:

Five Questions Every Private Equity Investor Needs to Ask: The game of private equity is changing. As it moves from a tactical focus to a strategic focus, investors now need to prove their worth by demonstrating their ability to add operating value to portfolio companies. If this new strategy leaves a pit in your stomach, have no fear — Tyler Newton offers up five questions that could help make this change a smooth transition. Ask yourself how well you’re executing against these questions every 3 − 6 months for best results.

M&A Volume in Software Industry Increases 6% in H1 of 2012: Yes, you read that title correctly. The software industry experienced a 6% increase in H1 of 2012. Yet, good news often comes with bad news. Although the total volume of M&A activity in the software industry increased from 2H 2011, the total value of these deals dropped 5%. This combination of increased volume and decreased value seems to be trending across all industries. Read the full article to learn how Facebook helped to skew these numbers even more, and how software for existing digital marketplaces is likely to be a solid investment.

Distressed Investing: Looking for Bad Luck Rather than Bad Companies

Bill Ackman on Time Arbitrage: The investing strategy of Bill Ackman — CEO and founder of Pershing Square Capital Management — is deceivingly simple: overlook the bad news. Akman believes that many investors react too quickly to unpleasant findings. “Negative news”, “margin borrowings”, “investor redemptions”, and the like should not be reason to ditch a valuable company. Additionally, the skittish should not assume that private markets are any more stable than the public ones, just because the volatility is better hidden. Key takeaway? As the economy recovers, investors should not blingly run away from any piece of bad news for fear of losses.

‘Terrifying’ Landscape For Distressed: And, as a final note, we are passing along the PrivCap interview with Mark Patterson, Chairman of MatlinPatterson Global Advisors that was published this morning. We got a sneak peak at this interview last week, and found it to be extremely insightful. Mark also spoke about how to seek out companies with bad luck but good fundamentals, as well as covering how government intervention affected the firm’s ability to make distressed acquisitions and what he’s learned from his own failed deals.