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Private equity chiefs play waiting game

1 Dec 08

Two-thirds of private equity bosses have stopped investing during the crisis in financial markets, preferring to wait for the economic downturn to throw up more attractive deals

More than half of the 220 senior private equity executives questioned for a survey last month by the Economist Intelligence Unit across Europe and the US said they were confident the markets would recover to pre-credit crunch levels within 18 months.

However, 96 per cent thought their industry would have to change. A fifth said the industry needed a new financing model.

Private equity groups – which use a mixture of investor funds and risky loans to buy companies – have been hamstrung by the turmoil, which has made it much harder to raise debt.

The value of private equity investment dropped to $58.56 billion in the third quarter, down almost two-thirds from the same period last year, according to Thomson Reuters.

Private equity accounted for only 6.8 per cent of mergers and acquisitions in the three months to September, compared with 18.3 per cent a year ago. So far in the fourth quarter, it has fallen to just 2.6 per cent of all M&A.

Almost a fifth of buy-out executives expected the global financial crisis to trigger consolidation within their industry. But only 2 per cent said they would cut staff and 26 per cent said they were still hiring.

A lull in deal-making can be unsettling for private equity groups, but they have shown in the past they can take advantage of their long-term funding model to wait for market conditions to calm.

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Tags

Private equity | buy-outs | economy

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