THE ANNUAL REVIEW 2010 - PEI Media

private equity annual review 2010 pa g e 125
i n d u s t r y c o m m e n t
In their own words
Selections from expert commentaries published on PrivateEquityInternational.com
retail comes back
Scott King, senior managing director,
Sun Capital Partners
Retail was positioned for a strong year after many companies
spent 2009 “regrounding” themselves, “recharging batteries”, and
focusing on cutting costs, improving their offerings, enhancing
executive at store level and streamlining operations.
Though consumer confidence had not yet come back and the
country was still fighting through a recession, private equity
had a golden opportunity to find quality companies that just
needed a bit of direction.
“For some retailers, the trouble with performance is not cyclical
but about fundamental economics that don’t work, and thus they are
fighting an uphill battle. Generally, what we find is that management
of struggling retailers are in need of a fresh set of eyes to evaluate
their core business and provide a roadmap.”
“Often times, private equity firms are in a better position than
strategics to do so. Why? Because they bring a broader base view and
experience to the retail world, a strong operational skill set and a
different sense of urgency to driving results as they hold companies
for a limited time, generally between five and seven years.”
credit markets on fire
Greg Mondre, managing director,
Silver Lake Partners
Credit markets stormed back in
2010, the Federal Reserve kept
interest rates near zero and confidence
in the market returned.
The dynamics led to two things:
sponsor-backed companies
aggressively amended capital
structures and extended debt
maturities and multi-billion buyouts
returned.
“Projecting ahead, GPs will
attempt to drive more exits and
return of capital to LPs. In contrast to last year, expect to see the
completion of large sponsor-backed IPOs in 2011 as solid fundamental
performance will replace deleveraging stories,” Mondre wrote.
“As a result of higher PE marks, successful return of capital by
GPs and rising equity portfolios for LPs, top quartile managers
will have reasonable success raising follow-on funds. In terms of
new deal activity, franchise businesses, high growth companies and
corporate divestitures will continue to attract heavy sponsor activity.
However, the bar will, and should be, raised on the standard of new
buyouts given current valuation and leverage levels. Note that the
S&P 500 has increased over 75 percent since reaching bottom in
early 2009 with positive fundamentals in 2011 already priced in
for many companies.”
europe heats up
Buchan Scott, partner, Duke Street
European private equity got back
on track last year, with successful
fundraisings and exits from precredit
crunch acquisitions demonstrating
that private equity was
set to play a big role in Europe’s
economic recovery.
“Private equity’s share of the UK
M&A market has bounced to the heady
levels of 2006, up to a handsome
73 percent in 2010, against just 28
percent last year. In the UK, average
deal values, according to KPMG, are
back to 2006 levels of around £180 million. In Q2 2010, 95 deals fetched
average multiples of more than 11x EBITDA. In France, private equity’s
M&A share is up to 64 percent in the third quarter of 2010, according
to CF News, with a large proportion of high profile deals also trading
at 11x EBITDA, according to Argos Mid-Market Index for June 2010.”
“Naturally, some countries are more pre-disposed to private
equity than others. Post-downturn, the UK and France have
been the most active players in Europe. France in particular, has
had a good downturn. Its socialist legacy has meant that it never
became overheated or overly cooled as a market. The huge weight
of civil servants and the low household debt levels are strong shock
absorbers for French consumer demand.”