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Comment: Electra Private Equity reports deals at 2007 levels

Mark Spinner (pictured), a partner in the private equity team at law firm Eversheds, comments on the news that London-listed private equity group Electra’s deal pipeline is back to 2007 levels and it has announced plans to raise GBP 100 million using convertible bonds, to fund new investments.

Like Electra Private Equity, Eversheds has also seen activity levels returning. If all of the transactions that we are currently being instructed on come to fruition we could easily surpass the number of deals that we completed in the heady days of 2007!
The increase in transactional activity is being fuelled by a number of factors: First, the availability of senior debt facilities has eased somewhat and the high street banks are now keener than they had previously been to deploy capital into the market, albeit on more expensive terms. Despite the uncertainty caused by the Irish bail out and the announcements regarding the public sector cutbacks, confidence levels are generally better now than earlier this year. There is very little talk anymore about the double dip recession, which has failed to materialise.
Second, there remains a significant demand for the best assets and there was a wall of private money raised in 2006/2007 and early 2008 which has still to find a home. The competition for the best assets also means that advisors are once again able to run competitive auction processes, which makes it important for the advisors to potential private equity buyers to ensure that they back the right horse.
Third, limited partners have seen other asset classes (principally the public markets) rebound strongly meaning that, with percentage allocations to private equity remaining broadly static, the amount of cash allocated to private equity in the short term is likely to rise. The increase in cash allocated to the asset class means that a number of funds are looking at 2011 as a good time to raise their next fund. As such there is a renewed desire to invest the remaining equity available in the current fund and to exit from investments showing a return to investors in order to smooth the fundraising process.
Finally, the desire to exit from portfolio investments is likely to mean that there will be a surge of direct secondary transactions in 2011, which again increases confidence and activity levels.
Overall the recovery certainly appears to be on the way. Although it would be premature to say that we are out of the woods, I think that there are sufficient signs that we can be cautiously optimistic about a private equity led recovery in the M&A markets in 2011/2012.

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