Almost two thirds of buyout firms are shifting to deals in defensive sectors such as health care as they face the threat of losing control of their companies to banks, a survey by accountancy firm Grant Thornton has found.
Private equity firms are struggling with the debt they piled on their portfolio companies at the height of the boom, as a downturn in sales forces many firms into difficult discussions with the banks.
Health care and support services companies will be the most attractive to buyout firms as they search for deals that provide steady cash flow, Grant Thornton said on Monday.
“A growing number of private equity executives feel compelled to shift their focus to those sectors that are popular with the institutional investors that need to provide the finance for new acquisitions,” head of private equity, Mo Merali, said in a statement.
Some 64 percent of firms expect to shift their sector focus in the coming 12 months, with 55 percent expecting to focus on health care, pharmaceuticals and the medical sector.
Some 48 percent see business support, infrastructure and logistics as their busiest area, the survey found.
Three quarters of buyout firms surveyed expect to expand their portfolios through acquisitions over the coming 12 months, but an even greater number expect to run into difficulties with their existing investments.
Eighty-one percent of more than 100 private equity firms surveyed expect some of their portfolio companies to breach banking covenants.
“A significant proportion of respondents will (need) to refinance some of their portfolio companies and more than half of our private equity clients expect difficulties in achieving the refinancing,” Merali said.
Fifty-two percent of respondents anticipate difficulties when they come to refinance investments, while 18 percent do not expect refinancing problems.
(By Simon Meads)