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PRIVATE EQUITY OUTLOOK
THE COMEBACK KIDS
Private equity fund values took a battering in 2008, begging the
question: has the buy-out industry hit rock bottom? Andrew MacLeod
talks to industry players about their predictions for the year ahead
M
ichael McDonagh, a corporate to return, bread-and-butter deals should McDonagh calculates that, come the half-
finance partner in KPMG’s be back on the menu come the second year turn, transactions will be driven more
Private Equity group, is finding half of the year. from choice as investors better understand
reasons to be cheerful as he surveys the He says, “The market hit bottom the economic climate’s impact on company
prospects for mid-market transactions in the last quarter of 2008. In terms of results, and discover a freshly whetted
in the coming year. In his view, the transactions, it was as quiet as it could appetite for investment. “They will be able
market hit bottom in the last quarter get, and is likely to remain that way for to take a much more rigorous view of the
of 2008, and is likely to remain there the first half of 2009.” risks they are taking, and how to price
until the third quarter of the current those risks,” he says.
year, as private equity houses lick TIGHT CASH FLOWS He warns, however, that there will be no
their wounds, draw a deep breath Any recovery will depend on a number of return to the heady days of the past few
and count the considerable cost of factors, says McDonagh: “In the mid- years, and companies seeking private equity
the gathering recession. market, there will be debt available for the funding will have to accept that they must
sacrifice more equity than they might like.
It follows, therefore, that since private
“The market hit bottom in the last quarter of 2008. In terms
equity houses will be in a position to drive
a harder bargain, money invested now will
of transactions, it was as quiet as it could get, and is likely to
be well spent. “Perversely, money invested
remain that way for the first half of 2009” Michael McDonagh
in 2009 will see some very good returns
indeed,” McDonagh explains.
According to some observers, many right transactions, although there are very GUARDED OPTIMISM
investors will be on the receiving end of few to look at. However, activity will return, Over at Preqin, a private equity research
some very bad news in the coming weeks, subject to an alignment of price organisation, managing director Mark
as letters drop onto the mat informing them expectations as much as anything.” O’Hare is also in optimistic mood – and his
that the investments they made at the Even in the hardest times, a certain bright outlook is backed up by statistics.
height of the boom have now shrunk by number of transactions trickle onto the “Our prediction for this year is that things
as much as 30 per cent. market, albeit reluctantly. Often these are aren’t quite as gloomy as everybody else
McDonagh takes a glass-half-full view of dictated by the harsh side effects of the thinks they are,” he says.
the situation and reckons that, although downturn, as firms struggle to maintain He also points out that, although PE has
we may have to wait a while for the jam cash flow. received a pretty bad press over the past
34 Mergers & Acquisitions
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