EUROPE - European buyout firms remain confident of matching past returns despite increasingly tough exit conditions and intense competition from the US.
Firms expect to produce average annual returns of about 17% over the next five years, partly by focusing on operational rather than financial activities.
According to a report from research firm AltAssets - Performing under Pressure: A Survey of European Buyout Firms - most of Europe's 75 most active buyout firms foresaw problems in the short-term for the sector against a more positive longer term outlook.
There is a strong sense of sobriety in the European buyout sector,” said Chris Davison, head of research at AltAssets.
“Firms are confident of being able to generate good returns over the next few years but they are under no misapprehension about the challenges they face to realise those ambitions.
Other key findings included:
- Buyout firms rank their ability to bring about operational change in companies as the main generator of returns, even though only 38% of buyout firms actually have operational expertise.- Financial sales are expected to increase their share of total exits to 21% over the next three years from a historical average of 14%, taking up most of the slack left by a steep fall in IPOs (Initial Public Offerings). - Trade sales are expected to remain “broadly flat” over the same period, while IPOs see their share shrink to 7% from 13%. - US buyout firms are impacting the top end of the market, with 57% of large European players citing them as an important source of competition. Over 70% of firms said competition had grown since 2000 and expected it to continue.- Europe's most highly regarded buyout firms are BC Partners, Permira, Apax, CVC and Cinvenint in that order. Investors preferred firms which had pan-European reach.
Market conditions have changed dramatically over the past two years but buyout firms, as befits their role as adaptive opportunists, believe themselves to be well positioned to perform under pressure, added Davison.
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