Show me the exit

Emanuel Eftimiu
18 October 2010

Tweet
Facebook
LinkedIn
Google plus
Send to

Talking to a few GPs recently, there seems to be a general notion that, if not already, then we are certainly entering an exit-friendly period.

This, of course, would be good news for LPs, some of which will have had few distributions to cheer about in the past couple of years. So what signs are there to back up expectations of a strong exit environment?

To start with, pricing in the market has remained remarkably high. This might be surprising to some, given the overall challenging macro-economic conditions, but once trading visibility returned to the market earlier this year even at limited levels valuations have tended to be closer to previous vendor expectations. What is more, with improving liquidity in the debt market, one would not expect private equity valuations to contract.
Then there is the oft-cited dry powder of private equity funds, which, combined with expiring investment periods, is set to increase competition and, with it, pricing.

Given such prospects, it is little wonder that recent research among UK GPs found two-thirds of private equity professionals expecting to exit as much as 50% of their portfolio companies over the next 12 months, compared to just 10% not looking at exits at all. And given all the talk about secondary buyouts dominating the market, one should note that GPs believe trade sales will form the bulk of their exits, with 76% expecting to sell at least one company via this route.

Exit volumes have already begun to show a slight upward momentum, but are still a long way from pre-crisis averages. Maybe the wait for a flurry in activity is indeed coming to an end.