The private equity sector remains hungry for deals in spite of the recession, according to a survey of 475 private equity managers by Directorbank, a private equity recruitment speciali
The private equity sector remains hungry for deals in spite of the recession, according to a survey of 475 private equity managers by Directorbank, a private equity recruitment specialist.
Respondents viewed the current straitened economic conditions as offering significant opportunities. While fewer than one in five respondents said they saw traditional management buy-ins as highly attractive transactions in the current market, more than 60 per cent said they saw operational turnarounds as attractive opportunities. A huge 90 per cent said they would consider taking an interim position in a distressed company.
Private equity managers were also upbeat about their market picking up, after a deathly quiet six months at the start of 2009 for completed private equity transactions. Over two-thirds believed that activity will pick up next year, while only ten per cent think that deal flow will slow still further.
Further, managers expect to enjoy attractive returns on their investments, with more than 37 per cent predicting that a deal completed in 2009 would earn between three and five times the initial investment, and a further 35 per cent forecasting returns of between two and three times. Only 12 per cent said they expected to make less than two times their money, while a bullish 15 per cent said they would make returns of five times their investment.
Healthcare, education, energy and utilities were thought to be the sectors that would offer the best returns with construction, property and financial services performing worst in the view of respondents.
Respondents remained positive about the private equity ownership model. More than 60 per cent of respondents said that private equity was a more attractive form of ownership in the current economic environment, when compared to the public markets. Only 16 per cent thought that the publicly quoted markets were a more attractive form of ownership.
But managers were also expecting to have to put more ‘skin in the game’ as part of future transactions, with nearly half of managers anticipating that the level of equity participation expected of them would increase, while only 12 per cent thought it would decrease. The remainder felt the level of equity participation will remain about the same.
Despite continuing to see private equity as offering numerous opportunities, however, respondents were gloomier about the prospects for the UK economy as a whole. Only 11 per cent of those surveyed believed that the UK economy would start to recover in the second half of 2009, while nearly two-thirds (62 per cent) thought the upturn would not begin until 2010. A quarter of those surveyed (24 per cent) said they did not expect to see green shoots emerge before 2011.
Respondents were even more pessimistic about the revival of the credit markets. Most managers believed that the benign conditions of 2007, when debt was freely available on generous terms, will not return for several years, if ever.
Only four per cent of those surveyed felt debt financing would return to 2007 levels within the next 12 to 24 months; more than a quarter thought the era of available finance would not return for two years or more, while nearly half said it would take five years or more.
Jonathan Hick, founder and director of Directorbank, says: ‘Private equity managers are not buying the idea that the UK will enjoy a rapid recovery, and do not expect to see those famous ‘green shoots’ till next year at the earliest.
‘But managers remain bullish about the private equity sector as a whole – they still see the sector as more attractive than the publicly quoted market and expect to make good returns on deals they complete this year, even if debt financing is far harder to come by than two years ago.
‘There have been concerns that the financial crisis would drive a lot of highly levered private equity-backed companies to the wall with a consequent high number of job losses. So far, we have not seen this develop, suggesting that private equity continues to offer a robust, stable and long-term ownership model.
‘Indeed, if anything, the volatile and short-term nature of the public markets makes the quoted sector a less forgiving environment than private equity for companies to survive in the recession and thrive in the upturn.’
