Ross Marshall, CEO Dunedin reviews 2011 and gives his predictions for the private equity market in 2012…
2011 was a year of two halves. Pre Summer the bond and debt markets were open and the PE market was very active; post Summer the debt markets seized up with the Eurozone crisis paralysing the banks – deals fell over because bank debt was not available.
We have seen a return to all equity deals, or the development of new solutions to ensure deal deliverability. We have used Dunedin’s DebtBridge solution in most of our recent deals that has given us a real edge when competing with other houses that have to rely on bank debt.
Those Funds coming to the end of their investment periods have either to extend or to pay high prices to get capital deployed.
Also, going into 2012 the Exit window may have closed for the foreseeable future for Eurozone assets and sellers.”
On to 2012:
There does not seem to be any conceivable way that the Euro can survive in its current form so we hope that there is an orderly break-up of the Euro rather than a disorderly break-up to resolve the Eurozone crisis.
We’re just delighted that our existing funds are sterling denominated and not Euro denominated – LPs will be asking GPs what will happen when the Euro collapses. This however, will create opportunities for well-managed, well-capitalised businesses like our portfolio companies that are relatively un-leveraged so that they can take advantage of the opportunities that will inevitably arise.
We are seeing that private equity firms are increasingly adopting buy and build strategies as a means to creating value in their portfolio. Dunedin backed businesses made a total of eleven buy and build acquisitions last year, with a number of other strategic acquisitions under consideration. This is a strategy that we plan to continue as a means of driving continued growth across our portfolio businesses.
Also, we should not under-estimate the sheer quantum of debt that has to be repaid by national governments, local governments, companies and private individuals over the next few years. It is going to be a long slow recovery so we should not expect miracles in the first half of 2012.
Nobody is under any illusion that fundraising will be easy. There are over 1,800 funds currently in the market and most of them will not succeed. Fortunately most LPs believe that the lower mid-market is the place to invest and that is the space Dunedin is in. Key factors will include: how the GP performed through the 2009 recession; the stability of the team; how differentiated and repeatable is the investment approach; and successful exits!
