Ross Marshall, chief executive of UK mid-market private equity firm Dunedin, says the Chancellor’s economic recovery plan outlines that the UK has scored a welcome double boost from strong economic recovery and a credit rating upgrade.
As the economy slowly gathers momentum, UK businesses of all sizes will once again return to a focus on growth.
Marshall says increased market confidence means that deal flow will continue to pick up in 2011 and because the banks are still cautious about lending, a greater number of UK SME’s will look to private equity to bridge the funding gap.
The private equity industry will see an increase in quality assets coming to market and there will be strong competition to buy companies that are performing well and that have opportunities for future growth, he says.
A rush of sale transactions in the third quarter of 2010 has pushed the value of private equity exits to more than three times that of the same period last year.
“The main source of exits has been secondary buyouts,” says Marshall. “Although the banks are still guarded, access to leverage is slowly increasing. This greater availability of credit is prominent amongst the factors contributing to the sharp increase in secondary buyouts. Secondary buyouts and trade sales will continue to be the most popular exit route for private equity firms in 2011.”
Marshall believes fundraising conditions will continue to be extremely challenging, as a considerable number of investors hold back from making new investments. Risk appetite from limited partners has significantly reduced and they are now a lot more cautious when deciding who to put their money with.
These mitigating factors as well as huge competition from general partners, will make fundraising prolonged and ultimately unsuccessful for an increasing number of private equity houses,” says Marshall. “On top of this, the AIFM Directive that has just been passed could cause non European LPs to focus on emerging markets rather than Europe. If this happens, then as feared, it would make EU economies less productive and less capable of growth.”
