Reality check

Rikke Eckhoff
29 January 2010

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Coming out of the worst recession for a generation, it is tempting to look for a positive angle or find an optimistic spin on the latest developments. Luckily, this month I did need not to look far: the latest unquoteт Q4 Barometer, produced in association with Candover, confirms market sentiment and shows Nordic private equity activity picking up at a faster rate than other regions.

It seems the buyout markets are gaining momentum, indicating a busy year ahead in terms of investment activity. But, the party might not last long, as the industry will still struggle to wind up the excesses from the boom years.

A recent report by Alix Partners estimated that European private equity has a EUR 400bn debt pile which will be up for refinancing over the next few years. Granted, banks have cleared up their balance sheets and are soon back in business, but there is simply not enough capital or willingness to supply the private equity community with debt packages matching those of the boom years. To add to the troubles, many of these have covenants based on aggressive EBTIDA growth estimates, which could prove hard to reach, even as European economies are exiting the recession. But even companies with cov-lite structures in place will also have loans due to maturity soon.

The majority of these cases are from the UK, yet, the implications are likely to be felt across the European private equity landscape. Fundraising will inevitably suffer, as LPs cut allocations, and become increasingly selective. With an expected busy year for deal doing, funds could find themselves struggling to convince vendors of the benefits of the PE ownership model. Continued economic uncertainty provides a volatile shake-out market. The awaited IPO market remains shut or at best risky, and trade buyers are still shell shocked. Secondary buyouts are making a debated comeback. And then we haven't even touched upon the issue of regulation. Private equity should tread carefully.

Finally, unquote" has launched new our new and improved website, including deals, funds and exit data, trend analysis and statistical research sourced from six regional unquote" journals on one site. Explore the site now, and perhaps you want to starting reading about our analysis and discussion on the return of the secondary buyout markets here.

I hope you will enjoy exploring the new site, and don't hesitate to send me your feedback.

Rikke
Nordic editor

E-mail me: rikke.lilla-eckhoff@incisivemedia.com
Follow me on twitter: www.twitter.com/rikkeeckhoff