Press Room
71% of private equity firms expect rising deal flow in 2010 as
debt markets thaw
Grant Thornton's Private Equity Barometer shows that 26% of
private equity firms did not make any investments in 2009. But the
quarterly survey of more than 100 private equity executives in the
UK also found that a total of 71% expected to see an increase in
the volume of new investments over the coming 12 months. Meanwhile
25% expected deal volumes to remain the same and 4% expected to see
a decrease in activity.
"In 2010, we expect the outlook for private equity in the UK to
improve in relative terms, but we will not see a significant
recovery of private equity before 2012, as the picture continues to
be marred by the uncertain economic outlook," commented Mo Merali,
Head of Private Equity at Grant Thornton.
Only 51% of the responses indicated that difficulty in raising debt
financing to support new investments would be one of the main
obstacles to closing deals in 2010, compared to 81% who named
unrealistic vendor pricing and 66% who named difficulty in sourcing
quality business for investment as one of the main obstacles.
"The results indicate that the debt market is beginning to thaw. We
have recently worked on a transaction funded by debt amounting to
more than four times EBITDA, a debt multiple we have not seen in
the previous 18 months. At the same time, the target was a great
business with great assets and good visibility of long term
earnings," ," said Merali.
80% of respondents to the Private Equity Barometer said they still
needed to invest 25% or more of their latest fund. A total of 27%
still needed to invest more than three quarters (75%) of their
latest fund.
"Private equity sponsors are very keen to complete new deals as
they need to invest the majority of their existing funds before
they can raise any new funds and there have been few attractive
assets on the market lately. We expect to see more companies coming
to market in the coming months because the market is stabilising,
because key stakeholders like banks want them sold and because
vendors are worried that there might be an increase in capital
gains tax. We have also seen an uptick in private company sale
mandates since September as some vendors just don't believe that
valuations are going to increase dramatically over the next 2-3
years," Merali pointed out.
81% of respondents to the Private Equity Barometer intended to
invest in buyouts in the coming 12 months. Some of these also
intend to invest in development capital by taking minority stakes,
with 58% of respondents confirming their intention to do so. 27%
indicated that they would invest in distressed assets while 12%
want to invest in publicly listed companies.
"There are a number of reasons why it is unlikely that many buyout
firms will shift their focus to taking minority stakes in so-called
expansion deals - many buyout funds have not got the skill set for
growth capital, while others manage funds that have terms and
conditions which would not permit them to focus on investing in
minority stakes. Large buyouts announced in December indicate that
large private equity firms have not given up the leveraged buyout
model," Merali explained.
"Our private equity clients are definitely feeling less pessimistic
than they were three months earlier," concluded Merali, referring
to a large drop in the number of respondents expecting to see
portfolio companies breaching loan covenants.
In Q4, 66% of private equity respondents conceded that they
expected some of their portfolio companies to breach loan
covenants, while 34% claimed that none of their portfolio companies
would do so. A total of 35% of respondents indicated that more than
half of their portfolio companies would breach conditions on their
loans. By contrast, Q3 had recorded 81% of respondents saying that
some of their portfolio companies would breach banking covenants,
while only 19% did not expect any of their portfolio companies to
do so.
In Q4, 45% of respondents agreed that they would encounter
difficulties refinancing some of their portfolio companies. 19%
denied facing difficulties refinancing some of their portfolio
companies, while 36% neither agreed nor disagreed.
Again responses in Q4 were slightly more optimistic than Q3
results, when 52% of the private equity professionals taking part
in the survey had agreed that they would encounter difficulties
refinancing some of their portfolio companies. 18% had denied
facing difficulties refinancing some of their portfolio companies,
while 30% had neither agreed nor disagreed.
For further information please contact:
Alexander Wessendorff, Grant Thornton press office, 020 7728
2048