European buyout firms are hopeful of matching past returns despite a challenging exit environment. They expect to produce average annual returns of about 17 per cent over the next five years, in part by building up their focus on operational, rather than financial activities, according to a research report from AltAssets entitled Performing under Pressure: A Survey of European Buy-out Firms.
The findings from the survey of 75 of Europe’s most active buyout firms reveal a challenging short-term outlook for the sector, but a more encouraging longer-term view. Buyout firms rank their ability to bring about operational change in portfolio companies as the main method of generating returns. Firms’ emphasis on operational priorities, however, may be more reflective of aspiration rather than the reality of what they can deliver, according to the report with only 38 per cent of buyout firms boasting operational expertise among their professionals.
Further highlights from the report reveal US buyout firms now making an impact at the top end of the market, with some 57 per cent of large European buyout houses complaining that their US counterparts have become a major source of competition over the last two years. LPs are also worried about the effect US firms are having at the top end of the market and over 70 per cent of buyout firms said competition had increased over the last two years and expect it to continue to do so.
According to the report, Europe’s most highly regarded buyout firms, as nominated by leading LPs are Apax, BC Partners, Cinven, CVC and Permira.
Chris Davison, head of research at AltAssets, said: “There is a strong sense of sobriety in the European buyout sector. Firms are confident of being able to generate good returns over the next few years, but they are under no misapprehension about the challenges they face to realise those ambitions.”