Private equity
Hard hit by the economic downturn, the average value of private equity funds is down 31%. That said the bottom of an economic cycle is often a good time for the private equity sector to invest and so they are “open for business”. Many firms have either kept money back or have been able to raise new funds, all of which have a lifespan in which the money needs to be invested.
For example, ECI Partners raised £500 million in the last six months. Equally, Octopus Investments’ Chris Allner expects his firm, which makes investments of £500,000 to £5 million, to soon reach a level of funds under management of over £1 billion.
There are changes to note too. With banks constrained by a lack of capital, private equity firms, including Octopus, have set about creating their own private debt funds in order to get transactions done.
When Kaupthing went bust, Octopus stepped in to refinance the debt facility originally provided by the Icelandic bank to CSL DualCom Ltd, the £7.2 million turnover intruder alarms business. With no bank funding available, Octopus’ Flexible Debt product provided senior debt for the £6 million MBO of Autologic, alongside private equity firm Foresight.
All of this serves as a statement of intent. It’s likely the autumn and early 2010 will see private equity investments kick in, as soon as the industry is confident the market has bottomed out.
Related thinking
- The age of equity
With bank lending dramatically reduced, now may be the time to consider alternatives. The re-emergence of private equity could hold the key to mid-market companies' funding requirements.
- Rich pickings
In this battered economy, many companies are struggling simple to survive. But for stronger cash-rich businesses with vision, now is the time to start the search for potential acquisition targets.
- No time to panic
Companies faced with a lack of credit over the next 18 months need to keep their heads and find ways to survive.