Private-equity backed companies are facing difficult times. Last year 106 fell into receivership, a rise of nearly 50 per cent from 2006, Paul Driscoll reports

Private-equity backed companies are facing difficult times. Last year 106 fell into receivership, a rise of nearly 50 per cent from 2006, according to the Centre for Management Buy-out Research (CMBOR).

The number of disposals also leapt up from 335 to a record 400 in the same period, as the average exit value dropped to £59.3 million from £80.2 million. More than a quarter of the 400 disposed of companies immediately declared bankruptcy, whilst the number of liquidations fell last year by 7.3 per cent to 11,147.

The findings are indicative of the tough credit climate and economic slowdown, with more disposals expected this year as private equity firms look to liquidate existing investments to give them sufficient financial resources for new ones.

Most of the buy-outs that ended in receivership were smaller deals, with only 20 worth more than £10 million, and were heavily weighted to the latter half of 2007.

Stephen Alambritis from the FSB said: “It’s in the interest of private equity firms for their portfolio companies to grow, the main problem stems from the four big banks becoming less flexible.

“HBOS, HSBC, Barclays and Lloyds and their private equity divisions fund some 90 per cent of small businesses. The banks’ lack of understanding and reduced leeway concerning late payments and credit is causing the rise in receiverships and bankruptcy.

“I would advise small businesses to make sure they have a number of suppliers to give them more maneuverability in the event of price hikes.”