The year of two halves

At the beginning of last year, the feeling was uniformly that 2009 would be the year of portfolio management. This has, to a large extent, proven true. Most buyout firms were busy preserving value and steering their portfolio through the crisis - a crisis characterised by "low visibility". Nobody really knew where things were heading, and most acted defensively

What deals were done in 2009 often took the form of add-on acquisitions, when portfolio companies could take advantage of rivals' weakened positions. Buy-and-build strategies, especially in the small-cap space, benefited from fractured markets and private equity firms' well filled coffers to drive consolidation as markets were reeling.

Asked about expectations for 2010, the most cautious GPs indicated some reluctant optimism that matters might turn around, with the vast majority expecting more deal flow, better quality companies coming to market, and lower or similar pricing (see page 11). Yet, many GPs continue to watch the banking landscape with worry, and this caution can only increase with the recent BayernLB write-off of its EUR3.7bn investment in Austrian Hypo Group Alpe Adria. The financial sector continues to look fragile and private equity will continue to have to reach deeper into its own coffers to finance deals for the foreseeable future.

At this point, many GPs expect a "year of two halves", with the first six months of 2010 continuing trends seen throughout 2009, and then recovery and normalisation during the last six months. Few expect a "bounce-back", however, with most anticipating slow, steady, sustainable growth and improvement overall. This is supported by preliminary deal statistics for the DACH region, which reveal a small uptick in activity in the third and fourth quarters of 2009. Certainly bolstered by large deals such as EQT's EUR2.3bn acquisition of Springer (see page 37), this might also have been fuelled by the usual rush to get the deal done before Christmas, but this could be one of the first signs of recovery, which could gain momentum in the next few months.

Yours sincerely,

Mareen Goebel

Editor, Deutsche unquote"

Tel: +44 20 7004 7462

mareen.goebel@incisivemedia.com.