Next downturn?

The oncoming exit parade could herald an inflexion point - or confirm that another bubble is underway. Kimberly Romaine comments.

Only a month into the new decade and there are already signs that the market, just moved from intensive care to a critical, but stable, condition, may be in danger of heating up again. The last week of January saw a foursome of deals clock up £1.9bn - two thirds the month's total, which itself was 10x last year's abysmal tally.

The future looks bright for exits, too: Blackstone is about to float Travelport, which with a valuation of up to $3.5bn is set to be the London Stock Exchange's largest IPO for two years. Hot on its heels is Apax and Permira's New Look, which just confirmed plans to re-list.

Should the floats successfully proceed, it would not only prove other lacklustre IPOs (Gartmore) as blips, but could pave the way for other private equity-backed success stories on the stock markets once again. Blackstone's Merlin could follow suit, as could BC Partners' Amadeus - a competitor to Travelport, which is looking to list on the Spanish market.

A string of successful exits could be just what is needed to reinvigorate the market. Distributions could begin flowing once more, and LP coffers would then be ample enough to consider committing to new funds again. And the funds will need it: already the CVC and Carlyle are eyeing up the EUR 5bn purchase of Kabel Deutschland.

But are we really in recovery? Just in October, unquote" conducted a straw poll that revealed the majority of readers deemed a reversion to mega-deals and mega-funds at least five and as far as ten years off. So for heady exits - and some may argue heady deals - to be back on the cards just months later may seem too good to be true. In fact some are already whispering that the seeds for the next downturn are being sewn now.

A lender explained to your editor that there is only finite sell-down liquidity to the funds. To boot, GPs may be forgetting the tide of 2006/2007 deals that are sailing along waves of generous covenant headroom, but they will hit buffers at the end of this year or the beginning of next.

Others point out this listing rush is just that - a rush; a single ray of light in an otherwise very dark tunnel; after all it'd mark the first private equity-backed flotation in the UK since Nanoco floated on AIM in April 2009; before that the last exits via flotation were in 2007. This point in time may mark most GPs' only hope of a decent exit this year, according to other sources. The true question is how long it will last.

- Kimberly Romaine