Nine out of 10 private equity houses expect to see the rate of investments increase in 2010 and half (44 per cent) are growing their teams to staff-up for a surge in activity. This renaissance spells the end of the trough which began with 2008’s credit crunch, according to new research we carried out among private equity managers.
This year, more than 90 per cent of mid-market private equity houses are preparing for a rise in investment activity with over 40 per cent expecting a significant ramp up. Underlying this appetite to invest is a broad consensus that 2010 will be a good time to take advantage of lower valuations, supported by the ongoing availability of funds that were raised prior to the downturn.
I am of the opinion that businesses have been vocal in complaining about lack of access to debt, but on the equity side, access to risk capital has never been better. There is unprecedented availability of private equity which still needs to be invested, creating opportunities for business owners who want to sell or raise finance for growth and expansion.
This said, the outlook does vary across the main business sectors – investments in healthcare, environmental, energy and business services will be in high demand while private equity houses remain more divided about investing in consumer-facing businesses like retail, hospitality and leisure.
2010 is expected to be a year of planning for the sale of investments, with private equity houses anticipating that investment exit activity will increase dramatically - by 53 per cent next year and 76 per cent in 2012.
PE managers say the sales of older investments were unsustainably low in 2009, with most citing delays of between one and two years, but the forecast for the next 18 months heralds a flurry of exit activity.
With high demand for deals now evident, owners who are quicker to bring their business to market may get a better price because the relatively low supply of businesses available means they will get special attention.
If you would like more information, please contact Alex White, Partner in Corporate Finance at BDO.