Private equity portfolios will see significant mark-downs in the near term following the UK’s decision to leave the EU, according to a survey of 50 UK and global private equity firm by Cebile Capital.
However, there is an expectation of spirited deal flow as debt markets improve, in the context of weak equity markets.
The survey reveals that deal prices will be driven down as large cap funds are largely in dollars and euros and will now find interesting buying points in the UK, given the depreciation of Sterling, while deal volumes protected by the limitation of other financing options and further downward pressure on prices due to the freezing of the IPO market.
In addition, respondents indicated that creativity will be needed with financing until debt markets normalise in a few months and that the biggest risk is a potential spill-over over of macro situation to Europe, as large cap firms have limited exposure to UK.
With regards to middle-market funds, the survey reveals that the consensus is that deal volumes will drop in the short term as fundraising prospects for UK General Partners going out on the road are much weaker, but that there will be opportunities for some, as those who have already raised their funds will see more attractive entry valuations for UK based companies.
Investors will access the secondaries market more to sell fund interests in UK based General Partners as market volatility, the UK outlook and the valuation of GPs with UK exposure continue to deteriorate. The survey reveals that a strong second half of 2016 likely given the abundance of dry powder in the secondaries market and a weak start to the year for the secondaries buyer community.
