Full Private Equity Market Recovery Possible in 18 Months?
According to a recent survey of 220 senior private equity executives conducted by Celerant Consulting, more than half of those surveyed believe that a full economic recovery of the private equity market will happen within 18 months.
The findings showed that US executives are more optimistic about the future than their European counterparts, with 62% of US respondents believing that a turnaround would occur within that time frame. As noted, the global sentiment was a bit more pessimistic, with 36% of UK and 32% of German respondents predicting a full recovery would take longer.
While loans and debt provide much needed cash for established going enterprises, private equity is responsible helping companies in the extreme growth and profit cycle, as well as companies with cutting edge technology which promises to have high potential rates of return. Venture capital firms would be examples of companies that provide private equity.
Paul de Janosi, Managing Director of Private Equity, Celerant Consulting, said: "Despite the optimistic viewpoint of a majority of the survey respondents, we feel that it will be a few years before we see pre-credit crunch levels of activity again. We expect the roots of early recovery to begin in the second half of 2009, leading to broader activity by mid-2010.”
During an economic downturn, private equity firms need to spend a significant amount of energy and resources on keeping their portfolio companies afloat. It is also a prime time to look for good companies to buy or invest in that have a strong product or service but are distressed because of the economy. According to de Janosi, this portfolio remediation work and focus on buying opportunities will take all of 2009 and half of 2010.
The majority of those surveyed by Celerant believed the private equity market has not hit bottom with 78% believing the volume of private equity deals will be reduced and 81% believing the value of the deals will decrease during the next 12 months.
Of the private equity professionals surveyed by Celerant, 66% indicated that they aren’t likely to make further investments at this time and when they do invest, they will be looking for very high quality deals.
As the global credit crunch has affected banks and hedge funds, it has also affected private equity firms, leading to the speculation that we will see significant consolidation in the private equity industry within the next several years.
Yesterday I was speaking to a senior asset based lending executive who heads a major California bank’s ABL unit. He made the comment that every day is a new day in banking right now. His sentiments seem to be true of private equity investors as well.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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