European exit market worst in the world

The private equity market in Europe is the toughest place to sell right now according to a report from Swiss gatekeepers SCM.

In an English language exclusive to EVCJ, the survey of 52 private equity firms and 178 funds reveals that the total of exits had fallen by 79% last year from 2007’s figures, and the number down by 54%.

The main driver for the drop in value is the 40% decrease in the number of secondary sales, as big as the combined decrease for tradesales (27%) and recaps (20%).

Write-downs have yet to become the fixture in European private equity predicted last year, increasing by just 3% to 10%, and accounting for just 3% in terms of the combined value of all European exit.

The situation for write-offs is more severe in the US, where they have grown by 7% to 17% in terms of volume and are up to 16% from just 1% of total value.

Overall exit values in the US have dropped by around 40% in 2008, which, when compared to Asia and the rest of the world (a 44% fall), makes the US the best performing market.

Despite the mild recovery of the stock and credit markets this year, SCM has not seen any improvement in the exit environment for selling private equity funds as GPs remain reluctant to sell businesses at current market prices.

“SCM believes that exit volumes will not increase in 2009 and likely end up below 2008 levels. Provided hat volatility in the stock markets remains moderate and the economic outlook does not worsen again, one may see a reopening of the stock markets for IPOs of larger mature companies in late 2009 / early 2010. Therefore, it will in SCM’s view once again be the larger buyout segment which should benefit first from an upswing, because after a downturn institutional investors’ appetite for IPO shares is usually limited to larger companies with predictable and stable cash flows.”

The difference between the exit climate for European buyouts and venture capital is minimal. Buyout sales are down 41% in number, with write-offs also down, from 5% to 3%, although the report makes it clear that it does not expect this situation to be replicated in 2009. Recaps also fell by number, from 18% in 2007 to 3% in 2008. Buyout exit value fells by 66%

Growth and venture exits fell by almost the same amount – 42%. Trade sales increased from 29% to 36%, IPOs fells from 11% to 1% and write-offs more than doubled from 15% to 35%. VC and growth exits by value declined by 54%.