Tough at the top

14 July 2008

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The prevailing opinion in the private equity market today is that it's not a good time to be a large buyout fund manager. With a 'sweet spot' a long way up the value chain, finding suitable targets is a tough job and convincing banks to back a transaction is even tougher. Conditions may be challenging at present and holding back might make sense, but a large buyout house is governed by the same dynamics as any private equity investor; namely, the need to keep up a reasonable investment pace so that 'LPs don't think we are just ripping out fees,' as one GP recently put it to me. A large buyout house could always take a leaf out of the Charterhouse book and slide way down in size in order to get a deal on the books, as the firm recently did when acquiring insurance broker Giles. Whether this is the best way to keep LPs happy is a moot point in the case of Charterhouse. Its track-record gives it the leeway to do a deal of this size and few would bet against the firm delivering returns on Giles in line with historical performance. The other option is to find a global media mogul looking to generate liquidity in a well-performing asset with great growth potential - this is the route Permira has chosen to go down

The firm's offer to take a majority stake in listed NDS, a News Corp affiliate and maker of technology for pay television providers, looks like as sure a bet as any in the current market. NDS has no debt and an extremely attractive cash balance of $696m. The cleanliness of the NDS books means Permira hasn't had to battle to secure bank financing, with JP Morgan and Morgan Stanley agreeing to provide senior and mezzanine debt. Two banks supporting a EUR2.3bn deal makes it feel like spring 2007 all over again. With contracts across the globe, NDS is hedged against the US recession and is poised to break into the Chinese market. This acquisition shows that for good businesses with healthy balance sheets, visible earnings and clear growth potential, banks are willing to lend and deals can still get done even at the top end.

One housekeeping point to end on: We are excited to have launched a new data service that focuses on returns - and believe it's more reliable than other existing products. Working with CEPRES, a private equity researcher, we now offer statistics that measure performance at the portfolio company level, rather than at fund level, since the data is based on the cashflows of portfolio companies instead of LP distributions. The data has been years in the making so we hope you find it useful.

Yours sincerely,

Nathan Williams

Editor, unquote"

Tel: +44 20 7004 7449

nathan.williams@incisivemedia.com.