Up and out

03 August 2009

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The market is picking up at last. After a sombre year in which deal values plummeted quarter on quarter, reaching a deep trough in January, they recorded their first quarterly uptick in the second quarter. This is cause for optimism - vendors of sound businesses are finally coming forward, and with price expectations that are at last converging with buyers'. Equally important, banks have gradually resumed lending, backing select buyouts with reasonable levels of debt

Finally, buyers and sellers are coming up with savvier ways of completing deals. Just as the vendor loan kicked off last year in an effort to bridge the gap between sellers' wants and buyers' abilities, offering owner managers the opportunity to earn extra through milestone payments, so private equity vendors are now helping fund the sales of their assets. The sizeable Wood Mackenzie deal saw vendor Candover offer a £20m loan towards Charterhouse's purchase. And the latest large SBO, that of Viking to HSBC Private Equity (see cover), saw vendor Inflexion pump £25m back into the new company.

Despite these encouraging signs, we're not out of the woods yet. This is because the optimistic uptick is in new deals. While encouraging, it is important to remember that a slew of deals overly leveraged in 2006-2007 have yet to reach critical situations that may force them into distress and, in some extreme cases, out of the portfolios of their private equity backers. This means that alongside this autumn's uptick, we should also expect an increase in distressed sales.

Naturally this could mean additional dealflow as incumbent backers need to bring on fresh equity in the way of new partners, and/or as others fall into the hands of banks eager to offload assets they are ill-equipped to manage.

Yours sincerely,

Kimberly Romaine

Editor-in-chief, unquote"

Tel: +44 20 7004 7526

kimberly.romaine@incisivemedia.com