Looking ahead

11 January 2010

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Will the poor economic outlook for 2010 mar any recovery in private equity? Or will this year - as many hope - prove a spectacular vintage?

Mercifully, more professionals now concur that 2010 will be a better year. Not hard, some sceptics may say, given the dire figures 2009 saw, but there are other reasons to be optimistic. Firstly, debt markets are at long last thawing out. That Lloyds solely provided £300m for the Marken deal illustrates the strides the leverage market have made in the last 18 months. And where lenders are still hesitant, GPs are stepping in to fill the gap (Marken had been fully underwritten by Apax before Lloyds stepped in).

Secondly, and equally important: vendors are coming out in force. Many held out last year, in the hopes that 2007 valuations would return - and this reluctance to sell at "reasonable" prices led to a lot of disappointed GPs (and advisers). However, a combination of time lapsed, plus a fear that looming tax hikes will mean today is a better time to sell than tomorrow, may see more quality businesses come to market. Corporate financiers are already speaking of this, suggesting that the tide turned around September. Interestingly, some even suggest that pricing will improve (for vendors) in two to three years' time, but that once patient vendors are now proving more eager to offload their businesses.

Another reason to expect increased deal activity is the sheer need to do them - it's what GPs are paid to do, after all. But, in addition to new deals, they need to offload existing assets because, if 2009 was slow for deals, it was dire for sales. With most GPs having devoted more time than average to portfolio management, it is fair to assume that many have looked ahead to divesting them. With stock markets up and other GPs further upstream hungry, the time could be now. Additionally, GPs will need to show exits to prepare for the next fundraising wave - likely in 2011, following the current lull.

More detailed points of views from the market can be found on pages 16-19. Fortunately, most of you feel the only way is up.

Yours sincerely,

Kimberly Romaine

Editor-in-chief, unquote"

Tel: +44 20 7004 7526

kimberly.romaine@incisivemedia.com.