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EquityFC Blog
Showing entries posted in March 2010
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All that money must mean... bubble! | 25 March 2010
Earlier in the week, we highlighted the $500bn-odd burning a hole in private equity pockets. And based on antedotal evidence (the deal-doers we've been speaking to), that money seems to be chasing only the high quality deals. M&A is back in 2010 - but you've got to be peddling the good stuff.
Well, there's more evidence mounting up of a stampede for quality - and it's starting to look like a bit of a bubble. (Full story here, but requires WSJ.com subscription.) Dealogic says the value of buyout deals in Europe alone so far this year is EUR9bn, compared with just EUR3.7bn for the first three months of last year. Jennifer Dunstan, partner at 3i is quoted as saying: "Prices have stabilized and debt is trickling back, but there is a very limited supply of high-quality assets and some funds are looking to make deals very aggressively."
Bubbles are almost always bad news, of course, and it begs the question: should you get involved in a PE-backed business you think has been overpaid for? There's no easy answer. It depends on the company, the other members of the management team and the PE firm (as well as its general partners). You might argue that PE firms that have "aggressively" bid for assets are going to be a whole lot more... "attentive" and that might make the finance function's job a bit tougher.
But if the team, the time and your talents are right - well, so long as your eyes are open and the incentives good, being a FD or FC in a backed business can be as rewarding as ever.
$503bn seeks quality deals. No time-wasters. | 15 March 2010
According to BusinessWeek, there's $503bn (yep, billion) sitting around in the "committed" column for the big leveraged buy-out houses. And time is running out. Many of them need to spend a fair bit of it before investors a) freak out at the management fees the money is earning the PE houses; and b) no longer have to commit it. It's a bit like seeing the same desperate lonely hearts ad over and over: "Wall of money seeks decent business for medium-term relationship. Me, overweight and no sense of humour. You, decent balance sheet. No time-wasters."
Part of the problem is that the list of targets that PE firms - of all sizes - are chasing has split decisively into two leagues. In the Premier Division are attractive assets with high-quality earnings and predictable revenue streams. Buyers can see growth opportunities and sell the deal to finance providers. (Despite that wall of money, the LBO model doesn't stand up without a fair chunk of debt, of course.) Everything else is Blue Square South - and the banks are still running scared of anything where the risk can't be tied down six ways from Tuesday.
There are two pointers here for FDs and FCs in, or chasing, equity-backed opportunities. First, if there's even sniff of a deal, due diligence is now central to the process. Jonathan Heathcoate, partner at Palamon Capital Partners, told me last week (for a piece coming up in Real Deals next month), “I think [at the moment] you might describe it as ‘more than comprehensive’ and maybe even a little bit anal." There's plenty of cynicism to go round, and according to a couple of dealmakers I spoke to, and no-one believes a hockey-stick revenue or profits forecast right now. The numbers are all important.
Second, chase the money. OK, it's true that even the mid-market companies are going to struggle to get a slice of that $503bn; the sub-£100m deals that make up the really interesting, rounded finance jobs that crop up have no chance. But where the numbers stand up and the opportunities are clear, there is money available from all sorts of PE players. Go for it.