Mid-cap and emerging markets to shine in 2011

John Bakie
04 January 2011

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The year ahead will be the golden age the industry's awaited for two years. But the rich pickings will be limited, with the mid-cap and emerging markets ripe for investment. John Bakie gives an overview

As the industry fires up again following the Christmas break, unquote" has spoken to professionals from across Europe to garner their views on what 2011 will bring. The mood is largely optimistic; with increased deal activity expected and renewed interest from LPs seeking to deploy capital.

Guy Semmens, partner at Argos Soditic, believes deal activity will see a modest increase in 2011, but also expects good vintages ahead. "Although the recovery will be slow, my guess is that investments made in 2011 to 2014 will be the best of this decade," he said.

The mid-market was highlighted as an area to watch by many, with several expecting this to be the biggest growth area in 2011. Given the rise of mid-market deals in 2010 - partly driven by necessity, as arranging finance for large buyouts became more difficult - it would not be unsurprising to see this trend continue.

Large-cap buyouts, on the other hand, are expected to remain rare, with only the highest quality assets likely able to secure the leverage needed to fund huge acquisitions. "After a difficult 2010, prospects for 2011 seem to be more positive, though this will vary for different private equity deal types. Large buyouts will be few in number and difficult to realise, but not impossible," says Fabio Sattin, chairman of Private Equity Partners.

Companies with links to emerging markets are expected to be particularly highly sought after. With many of the world's major developing economies managing to avoid the worst of the economic downturn, private equity players will no doubt want to increase their exposure to companies serving these markets. The drive into green energy and other cleantech businesses is also likely to see continued, strong growth.

Late 2010 also saw much talk of improved fundraising conditions, particularly for those with strong track records providing the kind of investment criteria LPs demand. Rhonda Ryan, managing director of PineBridge Investments, said: "Sophisticated LPs know that many factors are important to a fund's success and due to the long-term nature of private equity, times of challenge can sometimes provide the best investment opportunities."

However, 2011 is not expected to be an easy ride for European private equity players. Problems in some of the continent's weaker economies, including Ireland's recent bailout and continued concerns over Spain's financial institutions, could still pose problems.

Overall, the mood in the market is positive but it may be some time before the industry enjoys the kind of conditions seen in the early years of the 21st Century.