A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

PERSPECTIVES FOR THE INDUSTRY

4.2 A time of difficulties and challenges

The current crisis poses significant challenges to the private equity industry which had enjoyed unprecedented growth over the past decade, partly thanks to unfettered access to cheap credit. With the shortage of debt financing, mega-buyouts are no longer in scope, and private equity companies are focusing on mid-markets deals. In Europe, the LBO market re- duced by a factor of ten between 2007 and 2009, with only � 10.3 billion invested for the first half of 2009 51 . Prospects for buy-outs in the second half of 2009 and beyond remain clouded by uncertainty due to the continuing global recession and the shortage of debt. Exiting from investments has also become difficult with trade sales and secondary buy- outs in short supply and no stock market flotation of buy-outs in the first half of the year 52 . Until the recovery occurs, most private equity professionals will be more conservative with the value and volume of their deal flow 53 . In the middle of such turmoil, it is very difficult to make predictions about how the private equity landscape is likely to evolve following this major crisis. On one hand, GPs are currently experiencing some of the toughest fund raising condi- tions in the history of private equity, as a result of investors being less able and willing to commit new capital. The Financial Times has described the situation in the following terms: “Big investors in private equity, including pension funds, insurers, endowments, family offices and charities, are steering clear of new private equity funds as they lick their wounds over losses from money put into earlier funds. 54 ” On the other hand, despite the current difficulties, there are many reasons to remain optimistic. Opportunities do exist; Megadeals may have vanished but not medium-sized or all-equity deals. In addition, the ongoing financial crisis has severely depressed the prices for equity assets around the world and the 2009 and 2010 vintage years are likely to represent an opportunity of a lifetime for those LPs with the courage to commit new capital to these markets. The current crisis could also lead to a positive survivorship selection, with only reliable funds remaining on the market. Last but not least, private equity firms are well poised to stand in as a new class of share- holder in the overturned public-equity market, in developing economies and in financial institutions. They possess a large amount of capital, exactly what the economy needs in order to support the financial giants that have been collapsing recently. As such, private equity could prove to be the new stimulant of the economy.

4.2

51 Source: La Tribune, “Aucun signe de vie sur le marché du LBO”, 9 October 2009 52 Source: CMBOR (Centre for Management Buy-Out Research) website, 2009 53 Source: The Economist, “Mapping the recovery, New strategies for private equity markets – A report from the Economist Intelligence Unit”, 2008 54 Source: Financial Times, “Investors steer clear of private equity funds” by Martin Arnold, 2 April 2009

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