Positive Signs in the European Exit Market

by Kevin Neadley

  • 27 Oct 2011
  • PE

Before a deal is even complete a private equity firm is already thinking about a successful exit. Without one a general partner (GP) cannot return capital back to its limited partners (LPs) and it is unlikely to be successful in raising a new fund next time round. An exit is therefore a vital part of the private equity cycle.

The good news for both GPs and LPs is that the European exit market has shown signs of improvement this year despite the precarious nature of the economic region. In fact, private equity firms have been much more willing to divest their stakes in Europe-based portfolio companies with the aggregate volume of exits this year to date up 18.5% on total 2010 figures. Indeed, this uptick in exits has meant more capital flowing back to LPs with the aggregate amount realised by GPs so far this year hitting €96.3bn. This is already a 76% increase on the €54.7bn realised for the entire 2010 period.

With strong cash reserves strategic buyers seem much more capable of competing with private equity firms over fresh deals. For instance, of the 378 exits made so far this year, 42% of these were sales to strategic acquirers while secondary buyout deals accounted for 38%. Unsurprisingly, given the fitful behaviour of the credit markets, private equity houses appear less likely to take their private companies public and the volume of private equity-backed IPOs this year have decreased by 44% on 2010 levels.

With the average holding period of a portfolio company being around 4.8 years, private equity firms will be looking to divest some of their investments made during the 2007 boom-period. Two recent notable exits of companies bought during this era include the sale of France-based animal nutritional solution provider, Provimi. The company was acquired in January 2007 for €1.25bn by Permira and then later sold to strategic acquirer, Cargill Inc. in August 2011 for €1.5bn. The exit earned Permira a 2.3x money multiple on what it originally invested. Another exit worth mentioning was the divestment of the Belgium-based electronic publishing business Bureau van Dijk Electronic Publishing by BC Partners. The company was originally acquired from Candover Partners in October 2007 after BC Partners paid €500mn for the business. It later sold the company in July 2011 to private equity firm Charterhouse Capital Partners for €1bn earning BC Partners a 2x money multiple.

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