Listen up sellers of businesses. You may have been chased relentlessly these past few years by private equity funds wanting to invest. Here's a warning. Those times may be coming to an end within the next five years.
Just as industry has been outsourced, so is capital now rewarding those emerging markets too. Money is flowing to China and India and that means less for local comapnies. Here in Canada, funds are still doing well raising new capital as our banks do have money to lend at good rates, allowing the private equity model to work. Elsewhere in the wolrd, the tide of money is retreating. Here is an article from the Financial Times. You need a subscription to read it all but I pulled a few key points.
As private equity bosses consider their New Year resolutions, many are likely to commit themselves to overcoming the meanest fundraising market in the industry's history by raising a fresh pool of capital. This tough challenge will separate the buy-out industry's sheep from its goats as increasingly choosy investors decide which groups deserve to be given more money to invest and which should be left to wither away.
Being starved of fresh capital is the kiss of death for a private equity group, giving it little option but to go into run-off, slowly selling off assets to return cash to investors. Some groups have already been forced out of the market. In the UK, Candover terminated its new €3bn (£2.66bn) buy-out fund this month after struggling to meet its own €1bn commitment.
Alchemy Partners has suspended new investments until at least 2011 after its founder Jon Moulton's shock departure plunged it into crisis earlier this year. Next year, scores of private equity groups are expected either to exhaust the capital available in their existing funds or to reach the end of their fund's investment period. This is likely to push some of the world's biggest buy-out groups - including Kohlberg Kravis Roberts, BC Partners, and EQT - to take the plunge and start fundraising in 2010. Some are already on the fundraising trail, such as Lion Capital, which is seeking €2bn for consumer goods buy-outs, and HG Capital, which has raised half its £2bn target.
But as investors are still smarting from big paper losses after the massive buy-out deals of the credit bubble, there is unlikely to be enough money to go round. As a result, next year could produce a shake-out in the private equity industry, rewarding the better performers with capital and leaving others to expire.
Partners Group, the Swiss fund-of-funds, has forecast that a third of buy-out groups "will be unsuccessful in raising meaningful amounts of additional capital for future funds and will eventually dissolve".
Jacoline Loewen, expert in private equity, author of Money Magnet, described as the best book on private equity by Austen Beutel.
No comments:
Post a Comment