80% of uk private equity firms expect more activity in spite of
price hike - survey
Grant Thornton's Private Equity Barometer shows that private
equity firms are increasingly looking to invest and are prepared to
pay higher prices across all sectors. The quarterly survey of more
than 100 private equity executives in the UK found that 80% expect
to see an increase in the volume of new investments over the coming
12 months, compared to 71% who expected an increase in Q4 2009.
Only 19% expect deal volumes to remain the same and less than 1%
expect to see a decrease in activity.
"Private Equity firms are currently putting
their money where their mouth is. We know that at least ten
mid-market deals have been reported in March alone, six of which
Grant Thornton has advised on. It is a clear sign of confidence
returning to the market. Deal activity is also driven by the fact
that half of the private equity firms still need to invest more
than 50% of their funds," commented Mo Merali, Head of Private
Equity at Grant Thornton.
78% of the responses identify unrealistic
vendor pricing as one of the main obstacles to closing deals in
2010 (Q4 2009: 81%). Almost the same proportion (77%) name the
tough trading environment (Q4 2009: 73%), compared to 59% who
indicate that difficulty in raising debt financing to support new
investments would be one of the main obstacles (Q4 2009: 51%).
"Even though private equity respondents voice
concern about unrealistic vendor pricing, they also indicate that
they are prepared to pay much higher prices for quality assets,"
Merali pointed out.
On average, respondents to the survey are
prepared to pay EBITDA multiples of up to 7.9 for healthcare, 6.4
for industrials, 6.2 for business support and 7.7 for high
technology.
Only three months earlier (in Q4, 2009),
private equity respondents expected EBITDA multiples to amount to
7.1 for healthcare, 4.7 for industrials, 5.8 for business support
and 7.2 for high technology.
"The swell of quality assets coming to market
in recent weeks has increased private equity appetite. Listed
companies and multinationals in particular are increasingly
disposing of quality assets in the UK to focus on their core
business. We have just advised the management of Kerridge
Commercial Systems on a buyout backed by NVM Private Equity. The
UK-based developer of Enterprise Resource Planning software was
sold by a subsidiary of US-listed ADP Inc," said Merali.
Almost 80% of private equity respondents
expect to complete a trade sale in the coming twelve months. At the
same time, less than a quarter of respondents rate the exit
environment as good. This compares to 39% who expect to sell a
portfolio firm to another private equity firm and 16% who plan to
take a portfolio firm public.
"This is the first time in years that the
number of private equity firms planning to exit investments via
trade sale is so much higher than those planning secondary buyouts
or IPOs," concludes Merali.
ENDS
For further information please contact:
Alexander Wessendorff, Grant Thornton press office, 020 7728
2048