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Private equity outlook 2009 – Mark Wignall, Matrix Private Equity Partners: “This will be a vintage year for new investment”

Mark Wignall, chief executive of Matrix Private Equity Partners, says a particularly good source of opportunity in 2009 will be UK public companies needing to raise cash and choosing to se

Mark Wignall, chief executive of Matrix Private Equity Partners, says a particularly good source of opportunity in 2009 will be UK public companies needing to raise cash and choosing to sell off quality, but non-core subsidiaries, lowering prices both for new investments and private equity-backed bolt-on acquisitions.

PE Wire: What is the outlook for the private equity industry in 2009?

MW: Deal completions will pick up sharply as buyers and sellers move to a new meeting of minds on price. This will be a vintage year for new investment. The opportunity could be even more exciting if the banks tighten the supply of finance to smaller companies. This has not occurred yet, but may well have by then.

A particularly good source of opportunity will be public companies needing to raise cash and choosing to sell off quality, but non-core subsidiaries. Lower prices will be good not just for new investments but also for private equity-backed businesses making attractive bolt-on acquisitions.

PE Wire: What will the fundraising environment be like?

MW: It will be tougher and the market may shrink. Large institutional investors’ own challenges and exposures may oblige some to reduce their allocations to private equity. As usual in these conditions, we will see investor flight to consistent quality performance and transparency, strong cash returns and perceived lower risk.

Larger private equity funds may have greater challenges demonstrating that their business models of larger, highly leveraged deals are still valid or alternatively that they can be finessed without adverse investor perceptions of strategy shift.

PE Wire: What will the exit environment be like?

MW: Private equity firms will nurture portfolio companies, support tactical bolt-on acquisitions and simply hold for longer as, in the main, they will not be forced sellers. The exception will be specialised high-quality companies that still command the necessary premium from strategic purchasers. It will be 2010 before a generally more attractive and available exit market emerges.

PE Wire: Who will be the winners and losers?

MW: Solidity, back to basics, traditional, cash generative, straightforward and transparent will be the watchwords.

The wholesale withdrawal of leverage for mega deals is testing the business models of the largest UK private equity houses. New investment deal flow has dried up and the higher degree of leverage in their portfolio companies may be giving rise to greater stresses.

Unusually, this is testing the very paradigm that in private equity, biggest is best. In fact, the industry is already reporting signs of a brain drain as idle talent decamps in favour of the UK middle market and other private equity firms down the value spectrum that are very much open for business.

PE Wire: How is your firm placed?

MW: Matrix is in great shape for 2009. Free from any distraction of portfolio distress, Matrix has significant liquidity available for investment. This dry powder will be deployed behind existing investee companies as necessities and opportunities emerge and highly selectively in those new investments that are priced more realistically to offer the right balance of return and risk.

With a significant reduction in available and competing sources of debt and equity, Matrix sees an increasingly needy UK smaller companies market offering a vintage 2009 investment crop.

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