Terra Firma says IPOs tough

Guy Hands, founder of buyout house Terra Firma, said IPOs of private equity-owned companies will be hard to achieve this year, returns will be lower and deal opportunities will be scarce.

Banks may raise their lending for deals but regulation changes means it won’t be in as substantial a way as people have been hoping, Hands said at the Super Return conference on Wednesday.

Thus, deals will be done with less debt and expected returns will also be lower, Hands said, meaning exits through IPOs will be more challenging.

Terra Firma’s most prominent investment is loss-making music company EMI. It is in a legal dispute with U.S. bank Citigroup (C.N) which advised on the 2007 deal and provided financing for the 4 billion pound ($6.3 billion) transaction. [ID:nLDE6132NY]

Hands said on Wednesday: “Equity markets, after their meteoric rise last year, are likely this year, at best, to be flat but probably with more volatility than we would like.

There was talk last year “from some industry leaders of how they would do seven or eight IPOs in the near future. Those IPOs have not happened yet and I would guess they will be more difficult than people expect,” he said.

A number of private equity firms have been bullish about opportunities to exit portfolio companies through IPOs. U.S.-based Blackstone Group (BX.N) said last year it planned to take advantage of improved equity markets to list up to eight of its portfolio companies.

Hands also said returns to investors in 2010 will be scarce, while the time taken to invest capital will take longer and ultimately returns will be lower.

(Reporting by Simon Meads and Megan Davies)