Money to burn?

Emanuel Eftimiu
18 August 2010

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Instead of the expected, traditional summer lull in activity, the unquoteт editorial team has been busy reporting on a continuous stream of deal announcements and rumours over the past fortnight. While it is difficult to put any exact number on deals that are reportedly in the pipeline, already announced or currently being completed, one feels that buy and sell side announcements are holding their balance.

That said, while there might be one exit for every buyout, the balance is clearly skewed towards buyouts when it comes to deal values. A quick look at acquisitions such as RBS WorldPay for £2bn and Tomkins for £2.89bn proves the point, as one struggles to find comparable transaction sizes on the exit side - that is as long as a portfolio company is not being sold to another private equity firm. Indeed, secondary buyouts have been a common phenomenon so far this year. Autobar Group is the latest sizeable company to change hands between private equity houses, in this instance between Charterhouse and CVC for a €1.2bn price tag.

Many funds' much-touted dry powder seems to have been ignited in the summer sun with private equity houses finally putting it to work, muscling out the competition in auction processes. Good news for the industry then? That depends on who you ask.

Secondary buyouts certainly help GPs to deploy capital as well as generate distributions, but they are not universally popular among LPs. True, some will be pleased to see capital coming back, but some LPs tend to focus on whether the acquiring GP has overpaid. Similarly, there are those who question whether the selling GP failed to maximise value just to demonstrate exits - though this begs the question, have LPs themselves pressured those same GPs into making distributions too early?

In any case, increasing dealflow has started to grease the gears of the private equity machine once again, but time will tell whether the industry is just running on fumes.