Private equity returns to the fore

After spending much of 2009 shying away from investments, private equity showed renewed strength in 2010 through its exits.

Statistics from global accountancy firm Ernst & Young show that 57 exits were completed in Europe during 2010, up from 30 in each of the two previous years.

IPO activity emerged as one of the main drivers of the increase, with 11 investments being exited though the offering route in Europe.

Jeffrey Bunder, global private equity leader at Ernst & Young, believes that private equity has performed well coming out of the recession.

He adds: ‘It has proved itself far better able to weather the storm than anyone had anticipated in 2008. Over the long term, private equity-backed businesses should continue to outperform public markets.’

In North America, exits increased to 118 in 2010, up 131 per cent from 2008 and 52 per cent from 2009.

The study finds that the best- performing sectors were energy and telecommunications, followed by healthcare, industrials and technology.

Despite the return of secondary buy-outs to the market (see Chart 2), the average age of portfolios rose to 4.2 years.

The report attributes this to the shortage of corporates from the M&A market, which presents a challenge to the private equity market recovery.

Bunder adds that, despite the marked improvement in private equity activity, the uncertainty regarding the economy challenges whether the increase in activity can continue.

‘Corporates have not staged a major comeback on the M&A market, despite having built up cash reserves. However, private equity is proving that its active ownership enables it to create stronger, more profitable businesses and that its industry remains robust,’ Bunder concludes.

The study adds that, through its research, private equity seems to be engaging earlier with management, potential new owners and advisers on the potential sale, to ‘warm up’ key parties.

Harry Nicholson, private equity partner at Ernst & Young, comments: ‘The most striking finding is that, within operational improvement, organic revenue growth is proportionally the largest contributor. In Europe, it accounts for 46 per cent of profit growth across a six-year study period, and 42 per cent in North America.’

Ernst & Young’s European study is based on the analysis of just over 375 of the largest European businesses (where entry enterprise value is greater than €150 million) that private equity has exited over the past six years, with the American study based on 440 cases in five years.

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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