Analysis

Exit routes: secondary buyouts gain popularity

Source: unquote | 27 Nov 2012
Proportion of exit types Q1-Q3 2011 v Q1-Q3 2012

Secondary buyouts have seen their share of the exit market rise, while trade sales hold steady, according to the latest figures from unquote” data.

However, exit numbers are set to end the year sharply down from last year, falling 63% in the first three quarters of 2012.

Looking at the first nine months of this year, secondary buyouts accounted for 29.5% of all exits recorded by unquote" in volume, up from 28.6% over the same period in 2011.

However, the total number of secondary buyouts has fallen by two thirds. It has been suggested that secondary buyouts may be easier to complete than complicated trade sales or flotations in the current market environment.

Trade sales increased in market share slightly, from 40.5% to 41%, though the total number fell from 180 to just 114.

On a brighter note however, the number of companies going into receivership has dropped significantly. In the first nine months of 2011, a total of 22 private equity-backed businesses went into administration, representing a substantial 5% of all exits. This has fallen to just 3 over the same period in 2012, accounting for 1.1% of the market.

It is unclear why the number of failing companies in portfolios has fallen so dramatically given the return of recession. It may be that portfolios were largely cleared out by the wave of failures last year, or perhaps the eruption of the eurozone crisis last year led some businesses to slim down and ensure they were able to more effectively weather the storm should the economic situation decline further.

Flotation numbers were only slightly changed, falling from nine in 2011 to seven this year, though market share rose slightly to 2.5%.

The sharp decline seen in overall exit activity is indicative of the current market. Private equity investors cannot access the financing needed to complete secondary buyouts. Trade buyers, while supposedly cash rich, are either unwilling to pay the price needed or are remaining cautious and saving their money for a rainy day.

Still, the fall in deals ending in failure suggests portfolio companies are largely healthy, they just can't command the kind of price that is needed. But profitable exits are a requirement to convince investors that the model works. GPs need to fundraise at this stage in the cycle, but if they cannot demonstrate their ability to exit profitably then it will be tough to convince LPs that private equity is a worthwhile investment.

Visitor Comments

 

Add your comment

We won't publish your address
By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication.

search unquote.com

Industry news

Fondo Italiano prepares divestment of two assets

Italy’s Fondo Italiano di Investimento is preparing the sale of its stakes in Megadyne and Arioli, according to reports in the local press.

Southern Europe unquote

| 16 Apr 2014 | secure

Emerisque appoints Back

Emerisque appoints Back

Emerisque Brands, the retail-focused private equity house, has appointed Steve Back as an operating partner.

UK unquote

| 15 Apr 2014 | secure

Keensight promotes Crochet to partner

Keensight promotes Crochet to partner

Keensight Capital has promoted investment director Philippe Crochet to become the firm’s fourth partner.

France unquote

| 15 Apr 2014 | secure

CVC finalises Grupo Zena sale

CVC Capital Partners is understood to be nearing the sale of its stake in restaurant chain Grupo Zena.

Southern Europe unquote

| 15 Apr 2014 | secure

Updating your subscription status Loading

People

Steve Back of Emerisque

Steve Back, Emerisque Brands

Emerisque Brands, the retail-focused private equity house, has appointed Steve Back as an operating partner.

More people news

Philippe Crochet of Keensight

Philippe Crochet, Keensight

Keensight Capital has promoted investment director Philippe Crochet to become the firm’s fourth partner.

More people news

Chris Merry of Ipes

Chris Merry, Ipes

Fund administration and outsourcing services provider Ipes, backed by Silverfleet Capital Partners, has named Chris Merry as its new......

More people news

Daniel Domberger of Livingstone

Daniel Domberger, Livingstone Partners

Mid-market M&A and debt advisory firm Livingstone Partners has promoted director Daniel Domberger to partner.

More people news

Helen Lucas of Investec

Helen Lucas, Investec

Investec has appointed Helen Lucas, former vice president in the debt finance origination team at Barclays, to its growth and acquisition......

More people news

Events

event

unquote" Nordic Private Equity Forum

Date: 13 May 2014
Location: Stockholm, Sweden
event

unquote British Private Equity Awards

Date: 02 Oct 2014
Location: London, UK

Email Alerts