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One man's loss is another man's gain

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The symptoms of the difficult economic climate are plenty, but opportunities are there for those willing to grasp them.

More than a quarter of all buyouts completed across Europe in the last quarter of 2008 contained no acquisition leverage, while in the beleaguered UK, a staggering 40% were all-equity deals in this time period, according to unquote" data.

If the drop in deal flow (just 237 buyouts in Q4 across Europe) and value were not sufficient indicators of the challenging times, there are also the various fund downsizes made in recent weeks. Earlier this month, Candover Investments Plc halved the NAV of its portfolio when it announced its final year results for 2008. The statement reflected the severe pressures being felt by firms at the larger end of the value spectrum - and therefore the sharp end of the current downturn, especially since the write-down followed five successive years of increases.

Meanwhile, Terra Firma Capital Partners has reportedly written off approximately EUR1.4bn from two of its investments, with UK music group EMI thought to be primarily responsible for the loss.

SVG Capital has also announced its end-year results, revealing a drop in NAV of more than 64%. The firm, which contributes the majority of its capital to, and is part owned by, Permira, announced that NAV per share has fallen to 348.1 pence. This is largely due to its sizable exposure to Permira IV, which is itself reported to have been written down by 36%.

Blackstone Group is also said to have written down the value of the portfolio in its $21bn fifth fund, Blackstone Capital Partners V, by 35%.

Yet amid this series of fund and portfolio downsizing, industry experts maintain that private equity's strength lies in the investments it makes in times like these. The counter-cyclical nature of this asset class has historically performed better following an economic downturn. With banks currently extremely risk averse and many distressed sellers likely to push for quick execution, private equity can exploit such opportunities in the form of purchases from distressed sellers, or PIPEs and take-privates on the depressed public markets.