Trouble in consumer sector for private equity firms but attractive opportunities lie ahead

Private equity firms have singled out the consumer sector (retail and other consumer facing businesses) as having plunging valuations and being most at risk of financial distress. Healthcare, business services and energy are seen as a safe haven, says a survey from accountants and business advisors BDO LLP Corporate Finance.

Consumer sector singled out for both problems and opportunities

The survey shows that although 96 per cent of investors have already reduced the prices they will pay for all businesses, the majority of respondents, 54 per cent, rank the consumer sector first for seeing the highest falls in value. Additionally, 65 per cent of investors identified the sector as being the most susceptible to financial distress and an accelerated sales process.

Despite this, the prospects for big return deals in the consumer sector have never been better for bold investors. If they can act quickly and are prepared to use equity instead of debt to acquire cash-starved businesses that are facing unmanageable short-term profit decline, attractive opportunities may lie ahead.

Alex White, Corporate Finance Partner at BDO, says: “On the face of it, the consumer sector should be one of the least attractive for private equity investors in 2009. However, to ensure their survival, some companies in this sector could be forced to sell cheaply and they will represent very attractive opportunities for well funded investors. Private equity firms can provide an equity lifeline and will be in a unique position to buy up struggling companies that don’t have access to the funds required to trade through the downturn.”

Safe haven sectors

Private equity firms have highlighted business services (26 per cent) energy and renewables (19 per cent) healthcare (17 per cent) and technology (17 per cent) as sectors most likely to see mainstream private equity support for existing investments in terms of buy and build strategies in 2009 .

In addition, the energy and renewables sectors are singled out by respondents as those most likely to see growing valuation multiples in the next 12 months. 

Alex adds: “While the banks have been instructed to become more cautious, some private equity funds will become more audacious. Special situation value investing will attract much needed liquidity for struggling sectors while more defensive sectors will continue to attract traditional private equity investment.”

The Private Equity Mid-Market survey explores the views of private equity firms and 100 UK mid-market companies backed by private equity.

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Notes to editors:

For more information contact Stephanie Aneto in the BDO press office on 020 7893 3073, Email: stephanie.aneto@bdo.co.uk

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