The long-term outlook for European private equity is expected to generate attractive returns, as investors rapidly renegotiate deal terms and signal a return to more conservative invest
The long-term outlook for European private equity is expected to generate attractive returns, as investors rapidly renegotiate deal terms and signal a return to more conservative investments, according to 3i Infotech – Framework.
Peter Wooster, alliances director for Framework, says: ‘After three years of exceptional growth, no one is in any doubt about the poor health of the financial markets and the impact that this has had on the private equity community.
‘Fund raising is at its lowest level for more than three years and the number of asset disposals has fallen off the cliff which has had consequences for both valuations and performance. However, while conditions in the short term remain volatile, long-term opportunities persist as investors focus on signing a series of smaller deals that require increased levels of equity and involve a more complex, hands on approach.’
Since 2001, average equity share in transactions has typically fluctuated at around 33 per cent although in recent months, with less available debt, average equity share has increased to more than 40 per cent.
Framework says that this, combined with an expected increase in the length of equity holding periods, has led industry insiders to pursue more long-term outcomes, with many European investors not expecting market prices to recover until 2011 or later.
Wooster adds: ‘Investors are under growing pressure to develop and protect margins, streamline operational efficiencies and increase existing levels of equity within businesses that can demonstrate strong performance and growth. It is therefore now, more than ever, imperative for private equity participants to be able to accurately map and assess all aspects of their existing portfolio.’
