More UK private equity house are tipped to diversify
investment mandates after the sectors deal volumes slid
again last quarter.
Statistics released on Monday by BDO Stoy Hayward reveal
that 77 private equity deals closed in the UK between July and
September, marking the fourth consecutive quarter that deal
numbers have dropped.
There are some bright spots for exit possibilities. But
cash-rich corporates and tighter leverage means theres no
end in sight for the recalibration of buy-side strategies.
There has been a trend for global private equity
houses to diversify - the sectors that they cover, the
geographies that they are looking at, and the investment
positions that they take, said Gavin Davies, London-based
co-head of Herbert Smith Freehills international private
The most radical departure is debt funds Electra's acquisition
£30 million subordinated debt portfolio in late
September being a recent example.
Results of a law firm
survey conducted last month predict that private equity
will overtake banks as the main source of turnaround funding,
which is a strong reversal from the previous years survey
On diversifying equity investments, Davies said certain
parts of the market have proved more active than others:
One obvious case is distressed asset
The Centre for Management Buy-Out (CMBOR) made a similar
prediction in its
Q2 report, which followed OpCapita buying Games Group
out of administration in April.
Real estate, infrastructure, and smaller assets (that are
approached on a buy-and-build basis) are also receiving a
Glimmers of hope
Exit opportunities have also been few and far between,
forcing many firms to adopt a wait-and-see approach, according
to UK private equity partners.
But there are more exit possibilities than on the buy-side.
There have been a few bright spots for private equity
sellers, particularly Japanese and Chinese buyer
interest, said Davies.
Asian buyers tend to approach deal execution
differently, such that they are not always the most obvious
buyers in a competitive auction process, he said.
But outside of a formal process, in current markets
Japanese buyers have been good buyers from private equity
sellers through bilateral processes.
Q3 report, released last month, draws a similar conclusion
and predicts that foreign trade buyers will buoy the UK
Sachin Date, Ernst & Youngs
private equity leader for EMEIA, commented on the report:
What we are seeing is a trend towards overseas buyers,
which are keen to establish a foothold in Europe, acquiring UK
PE assets to mitigate the risks and volatility currently
associated with the eurozone.
moribund UK listings market has all but ruled out exits by
way of initial public offering (IPO).
RBSs floating of Direct Line on October 11 is viewed
by much of the market as a test for the markets
Among the citys lawyers and bankers, Direct Line has
become the most anticipated IPO of the year.
But some are not convinced. Akin Gump Strauss Hauer &
Felds Sebastian Rice said while he certainly hopes Direct
Line boosts UK listings, its difficult for a sole deal to
signal a markets return.
Im slightly sceptical of IPOs being an immediate
solution, he said. Weve been waiting so long
for the market to come roaring back and Im not sure that
one listing can change everything so dramatically.
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