For the third year running, confidence among mid-market private equity investors is riding high, according to a new survey carried out by Grant Thornton Corporate Finance, with 84 per cent
For the third year running, confidence among mid-market private equity investors is riding high, according to a new survey carried out by Grant Thornton Corporate Finance, with 84 per cent of respondent expecting the volume of transactions to stay the same or increase over the coming year, and 82 per cent predicting that the value of transactions will do the same.
Since 2004, Grant Thornton’s quarterly Mid-Market Barometer survey has taken a snapshot of the industry. In the latest survey, 41 per cent of the private equity investors questioned said new investments would be their biggest priority for the rest of this year, while for 22 per cent exits would represent the main focus. Value creation within their portfolio (17 per cent) and seeking re-financing opportunities (7 per cent) also featured on investors’ priority lists.
Says Mat Bhagrath, a partner at Grant Thornton Corporate Finance: ‘The desire for new investments remains high, and a steady increase in the number of funds and the value these funds possess is creating a climate of intense competition.’
The survey found that business services (23 per cent of respondents) healthcare (14 per cent) and financial services (14 per cent) were the most popular sectors for investors over the next 12 months.
Within the healthcare sector, the survey revealed upbeat attitudes toward businesses involved in the manufacturing of medical devices, with 44 per cent of respondents indicating forthcoming investments in this area. Leisure and computing (10 and 9 per cent respectively) were favoured by investors.
‘It comes as no surprise that business services, financial services and leisure retain their appeal as sound investment choices,’ Bhagrath says. ‘Business services and financial services have long been investment staples among private equity investors, due to a track record of delivering consistently good returns. Investors will also be buoyed by the strong levels of consumer spending benefiting the leisure sector.
‘Expansion in the healthcare sector has slowed marginally compared with the same period last year. There has been particular growth in the appeal of businesses involved in the manufacturing of medical devices, brought about by the proliferation of cosmetic surgery, and more treatable medical conditions, against a backdrop of continued NHS spending.’
Asked about the biggest threats to deal-making for the remainder of the year, more than a third (34 per cent) of the investors polled cited competition from trade buyers as the main factor, followed by micro- or macroeconomic developments affecting the market. Competition from foreign buyers (10 per cent) was also seen as a growing issue.
‘Looking ahead, major economic issues aside, the most significant challenge the industry is likely to face is strong competition from trade buyers,’ Bhagrath says. ‘These have been noticeably active over recent months, and will seek to grow their businesses by making targeted acquisitions, giving private equity houses a run for their money.’
The Mid-Market Barometer surveyed 100 private equity investors typically involved in deals with a value of between £5m and £200m. Grant Thornton Corporate Finance is a leading provider of lead advisory, transaction services, capital markets and operations and post-deal services. During 2006 it advised on 166 deals with a value in excess of GBP3.4bn.
