From the looks of one recent survey, we’re in for another glum year in private equity.
The research done for “Mapping The Recovery: New Strategies For Private Equity,” a report from The Economist Intelligence Unit, found that nearly three out of four senior executives in the industry surveyed don’t expect a full recovery in the buyout market until at least the first half of 2010. More than 20 percent think private equity will still be feeling the effects of the economic downturn in 2011 or later. Majorities, 53 percent and 60 percents respectively, see both the volume and value of private equity deals falling 10 percent or more in the coming year. Seventy-five percent of those surveyed said they were prepared for boost the equity they include in their deals due to the current economic environment.
The report, which was sponsored by Celerant Consulting, an international business consulting firm, surveyed 222 buyout pros in North America and Europe in September and October. The majority of the respondents were located in one of four countries: the United States (22 percent), the United Kingdom (21 percent), France (14 percent) and Germany (14 percent). The size of the firms ran the gamut, although the lower and middle markets were well represented, with 46 percent of respondents working for firms having assets under management of between $50 million and $999 million.
The lengths that the survey found executives willing to go to in light of the economy were eye-opening. For example, many firms also said they would do deals outside of their normal sectors (44 percent), do deals outside of their normal size range (42 percent) and do deals outside of their traditional geographic markets (45 percent).
Another takeaway: a renewed emphasis on portfolio company management. A healthy 33 percent acknowledged that they would be ramping up their involvement, either because they are seeking more add-on deals (14 percent) or to generate extra cash (8 percent) or because they are in no rush to invest elsewhere (11 percent).
But the main message has to be the fact that so many in the business are essentially looking past 2009, expecting it will take at least that long for the tremors from the sluggish economy and subsequent turmoil in the financial markets to subside. “Almost all industry executives expect there will be fewer deals over the next year, and most believe that these will be of considerably less value than previously,” the report states.
Not exactly the recipe for a revival. And to think, this survey was done before the National Bureau of Economic Research ushered in December with its official recession declaration.