Subscribe to this page
EquityFC Blog
Showing entries posted in July 2008
Showing items 1 to 8 of 8
Previous |
Are things really looking up for PE? | 30 July 2008
An excellent fillip for private equity - and finance execs looking for fresh postings - in the news today that the value of European PE deals rose 15% in Q2. The number of deals also rose 9% to 390. While the guys from Candover (sponsors of the barometer) remain cautious, they think this shows PE's resilience to economic conditions (and, perhaps, the need to allocate some of those record-breaking funds, of course...).
Better yet for us here at equityFC, the smaller end of the market - deals worth less than ?160m - has seen really good growth, with values up 17% to ?1.6bn and deal numbers up 14% to 143. You can read the full report at this link or email me for it if you're having problems - my address is at www.writerandeditor.co.uk
Calling bottom | 25 July 2008
Is the end in sight for the credit crunch and maybe even for the economic downturn? There are signs - not many, but if private equity knows a thing or two, we are seeing green shoots. Like this news that funds including Carlyle Group are investing in financial institutions. They're making small bets that things are bottoming out - and that their investment will buy decent stakes at what will look like knockdown prices. It's risky - but if loan portfolios are shoring up, it could be a nice return. If...
Of course, bottom is harder to call in buy-outs. Financial institutions are more correlated to macro conditions, like interest rates, and there's masses of data to benchmark them against. Companies are more suseptible to competition, the whims of customers and management (although placing a great FD or FC can make a big difference, natch). So although Moneysupermarket has rebuffed a PE approach I'm not sure that tells us the mortgage, lending and utilities industries are about the turn. A CEO with a 54% shareholding is the X factor there - but PE's interest is a marker worth noting.
I have a little money to invest at the moment, and I like the look of the Guaranteed Equity Bonds. (I thought Moneysupermarket was a bit rubbish, actually.) You can never lose money - but you get any gains made by the FTSE 100. Of course, I'm not buying now - but a three-year bond bought when the market hits, say, 4,500 looks like it could be a nice little earner. In other words, I'm not calling bottom just yet, either.
Go East, young man | 17 July 2008
One of the positive aspects of the current "economic meltdown" in Western economies (although I find the mainstream media's largely uninformed blood-lust on the current situation rather annoying) is that unlike previous difficult periods, the global economy can do a lot to shore things up. China and India may also slow, but only from rapid growth to more modest expansion; there are the other BRICs countries (Brazil, Russia) which are still opening up. And there's Eastern Europe, again emerging from a period outside the global economy and changing quickly.
So it's no surprise to find private equity firms channeling efforts into these nations (and you can read more about PE's successesin China here). I've recently done a couple of case studies on Eastern European PE deals, and the firm concerned has been using experienced hands - many of them erstwhile CFOs - to tackle what are sometimes extremely taxing problems in these emerging economies. Does that mean there will be scope for British FCs and FDs to make a move? Possibly. The key tests will be turnaround and restructuring chops; experience of fast growth; and a willingness to move house!
DD on your PE backer | 14 July 2008
Thinking of joining a PE-backed firm? In theory, at least, you can now do a bit more due diligence on your new bosses thanks to the Walker Report coming into effect. This is the new code of conduct requiring PE firms to publish information about their investors, practices and activities. (Note, however, that www.walkerworkinggroup.com is down... how's that for disclosure?)
According to The Economist, the results are a mixed bag. It admires Terra Firma for its extensive information, but berates TPG for managing to generate just a two-page press release. Point being, this is much like ordinary companies: some are very open, others shy and yet more seem to quite reasonably conclude that detailed reports are a costly admin chore.
The Terra Firma review is very good, though, even by the standards of larger quoted companies with a sizeable private investor base. It's easy to follow, well designed and in many ways a good primer on how PE firms work. That has to be a good thing. Whether they're trying to win over management, current and future investors or regulators, more information just makes you look like a better bet. As finance execs, you thrive on data - after all, it's the bedrock of good risk management. I think you'd feel a lot more comfortable working with Guy Hands and his people than with a shadowy firm that appears to have something to hide.
Where there's brass... | 9 July 2008
If the private equity industry is in so much trouble, how come fundraising is surging ahead with little problems? According to Dow Jones Private Equity
Analyst, "185 funds brought in $133 billion for the first half of 2008, coming in just under last year’s
record pace. The venture capital segment performed particularly well, with
72 funds taking in $11.5 billion, up 15 percent from the $10 billion
raised by 62 funds in last year’s first half."
While we can't simply translate those numbers to this side of the pond, these are interesting numbers. The herd-like mentality of the pension fund managers must be partly to blame - they're usually late into an asset class, so it wouldn't surprise me if they committed a bunch of cash at the wrong time. But it also means plenty of investments must come of stream, which is good news for FDs and FCs keen to break free of the corporate bonds (and while the corporates may need to raise cash ahead of a downturn).
And the rise in VC money is great: dare we hope that these fine PE minds will be applied to fast-growing companies that really need their money? And dare we hope they'll open up some lovely "first financial controller" spots at small-but-exciting companies for you guys? Fingers crossed.
Credit crunch (pt.94) | 7 July 2008
There's been a lot of speculation about where we are with the credit crunch (end of the beginning? Middle of the end? Start of the third act?). But I recently stumbled on an interview the Wall Street Journal did with Teddy Forstmann, pioneer of the private equity scene. Read it here.
The short version is that he's doomish. Things are worse than we think, and in order to fix things, the US economy (his focus) will need some painful medicine. But it's a great explanation of what went wrong with cheap money and why we have problems now (ideal for showing your less financially literate spouse or child, in other words).
Oh, and if you haven't already, buy and read Barbarians at the Gate, the story of KKR's 1988 takeover of RJR Nabisco. Best business story (let alone private equity story) ever told in print - in which Teddy has a starring role.
PE: Good News, Bad News | 7 July 2008
Smart finance execs are always in demand by PE firms looking to inject a bit of discipline into portfolio companies - and that's true whatever the PE climate, the economic circumstances or the sector. But the PE climate remains an interesting topic for EquityFC readers, so I thought we'd run a semi-regular catch-up service to help you decide whether the boom is back or the end of the world is nigh (or, as is often the case, both). Just click on the comment/link to read the full story. So, this week...
Good news
Exits are OK - some PE firms are still realising big returns.
Nicola Horlick thinks PE is poised to pounce what with global equities falling in value and more firms using less debt in deals.
Bad news
The boom is over! - "The value of UK buy-outs has nosedived to £10.9bn this year, down from
£24.5bn in the 2007 first half and the lowest since 2004, according to
the UK-based Centre for Management Buy-out Research."
Confirmed! Everyone's bummed out by the CMBOR research.
Even Thomson Financial agrees - buyouts are down 82%. Any silver lining? For many FDs, used to paying massive advisoy fees, this might cheer you up: "Thomson Reuters also found that the decline in general mergers and
acquisitions has seen investment banking advisory fees crumble. Goldman
Sachs earned $1.7bn from advising on deals in the first half of 2007,
making it the highest earner among its competitors. It remains at the
top of the table, but so far this year has earned $241m."
The Economist calls the LBO players - and concludes they're in trouble.
Look to the portfolio companies | 1 July 2008
Yet more signs that the level of private equity deal activity will slow further (although, as I'm wont to point out, there are still plenty of deals out there...). In this case, it's the Grant Thornton Private Equity Barometer calling the slowdown: "In the quarterly survey of 100 private equity executives, 85 per cent
predicted deal values would fall over the coming year, up from just 13
per cent who foresaw deal values falling at the same time last year,
and 69 per cent in Q1 2008."
But there's some good news in there, especially for finance execs. Because there are fewer opportunities to deal, PE houses are looking to bed in solid growth at their portfolio companies. And that's got to mean a demand for top-notch FCs and FDs to keep the businesses on the straight and narrow. Says David Ascott, head of private equity at Grant Thornton: "It is hard to make the charge of asset strippers stick when you consider the long term position most PE houses are now taking."
In other words, it's doubly good news for experienced FCs. If you've been in a turnaround or high-growth situation before, your experience ought to command a premium...