It is not without some irony that as Sir David Walker delivered his final guidelines for disclosure and transparency in the private equity industry that the future of the mega buyout appears bleaker than ever.
Not only is the industry faced with this new burden of self regulation and disclosure, the blow is no longer cushioned by the returns promised from the mega deals. The very deals which landed them in this transparency debate in the first place.
And – to add insult to injury – the mid market funds, many of which are too small to be affected by Walker’s guidelines – are now turning the heads of LPs who are becoming more wary of the larger funds.
The death of the mega buyout and LPs increased interest in smaller country focussed mid-market funds were two major themes at the Super Investor Conference in Paris last week.
Speaking at the conference Guy Hands took up the baton from John Moulton with talk of pre-July days already being a ‘bygone era’.
He said: ‘Private equity has changed radically over the last few months it will take a long time if not forever to get back to the days of 2003-2007”.
“A leverage finance guy from one bank recently said he could provide £230m of senior debt, this is the same guy who could with one phone call get €1bn of bridge equity a few months ago”.
“Investment banks still have a lot to digest. Heads of leveraged finance who still have their jobs after Christmas will not be keen to lend to private equity. In January it will be how do we keep our jobs and stuff coming back on us, not how do we lend more? It is not a blip – these loans are like self certified sub prime mortgages”.
“Large debt deals will be difficult, this doesn’t matter when the mega funds are €5bn but it does when they are €20bn”.
“Banks are like dogs, happy in packs, enjoying the feeding frenzy, pushing each other out of the way – they smell weakness – but when they are hit they whimper and retreat and they aren’t going to come out of their baskets quickly – we will have to be nice to the bankers, they have to be our friends, we will have to pay them decent fees”.
That said, there was still some optimism in the crowd. Johannes Huth, managing director,
He says the main issue will be sellers: “We won’t be able to pay the same multiples we did up to June – the main question is will there be sellers at those prices? That will be the determining issue not the availability of cash”.
But whatever the reality is for the mega guys one thing was clear – the small European funds are definitely enjoying the limelight. One large LP told me he was having real difficulty getting invested into these funds and Rhonda Ryan, vice president, head of private equity funds group,