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Economics and Business Exchange Supported by Deloitte. Future Trends in Private Equity Jim Sloane, Deloitte We believe that private equity’s greatest growth is yet to come Apax Partners, April 2006 Stimuli Risks Debt Market • Interest rates • Corporate collapse Economies slow down Exit values plunge Overpriced assets Low interest rates We believe that private equity’s greatest growth is yet to come Apax Partners, April 2006 Stable regulatory environment Liberal policies towards Private enterprise Entrepreneurship New markets Delisting Strong debt market Value of Buy-outs In Europe (€m) Country Name 2001 2002 2003 2004 2005 2006H1 47 154 303 88 28 9 1,744 517 1,448 2,270 4,257 317 500 1,391 848 260 7,089 13,010 Finland 1,047 480 1,039 977 2,044 10 France 6,387 15,568 8,767 11,489 21,309 14,306 Germany 7,229 8,147 11,908 17,915 12,459 8,511 Ireland 5,021 4,930 747 977 770 197 Italy 1,002 3,428 7,773 2,937 17,512 1,096 Netherlands 4,433 1,899 4,958 7,612 10,334 12,126 Norway 1,370 142 308 431 470 1,281 Portugal 2 26 54 8 76 70 Spain 1,528 2,069 934 2,279 9,391 1,273 Sweden 3,005 1,116 2,226 1,701 4,702 2,293 Switzerland 715 2,766 865 1,578 1,033 774 Total (CE) 34,030 42,633 42,178 50,522 91,471 55,273 UK 31,343 24,848 23,570 30,149 35,398 14,984 Total (inc UK) 65,373 67,481 65,748 80,671 126,869 70,257 Austria Belgium Denmark Source: CMBOR/Barclays Private Equity/Deloitte Year 2006 figures are for first 6 months only Sector Distribution of UK Buy-outs/Buy-ins by Value (£m) Sector Group 2001 2002 2003 2004 2005 2006 H1 Business & Support Services 3,568 1,544 1,391 4,349 3,359 994 Financial Services 526 772 582 889 2,043 792 Food & Drink 668 849 464 741 205 334 Healthcare 558 1034 620 1,481 4,596 592 Leisure 5,629 4,683 6,162 3,582 5,178 2,954 Manufacturing 3,455 1424 1,164 3,005 2,860 1,192 149 70 911 202 200 50 2,890 813 465 1,366 469 298 Retail 627 2,822 2,292 2,449 2,629 1,117 TMT 590 483 1,545 1,175 1,525 960 Transport & Comms 212 237 421 426 199 253 Others 676 766 283 809 893 774 Paper, Print, Publishing Property & Construction Fund Sizes 8/9 funds in excess of $8 billion Blackstone - $15 billion Permira - $12 billion 3 or 4 year duration No issues raising funds We believe that private equity’s greatest growth is yet to come Apax Partners, April 2006 Barbarian at the gates Disposals Financial Engineering & Arbitrage Active Ownership (Jack Welch Lou Gerstner Lord Hollick Vivek Paul Millard Drexler) Barbarian at the gates Disposals Financial Engineering & Arbitrage • • • • • • • • • Active Ownership Public companies delisting Ownership Power to restructure New management Reward Leverage full debt capacity Talent flow Increasing financial scale FTSE 100 companies as targets ACTIVE OWNERSHIP Maturity of the business Scale Opportunity Strategic Buyers Returns from going private Club deals Management Teams Owners as supervisors and managers Strategy, Vision, Mission V. Opportunistic • Growth • Capital already invested • Exploit new opportunities • Agents for change • Buy, Build, Improve, Grow • Low hanging fruit taken Implications Increasingly important part of the economy Stimulus for growth? Private ownership delivers more? Risk of tackling operational issues Succession planning Continual flow of M&A activity (all sizes) UNITED KINGDOM Rank Overall environment for private enterprise 2 Financing environment 3 Market opportunities 2 Legal and policy environment 1 Entrepreneurial environment 6 The UK ranks second overall, and first in Europe, for its private equity environment. It is some way ahead of third-placed Australia, but by the same token, lags considerably behind the US. The UK government operates with a very light touch in the corporate arena, giving business as much freedom as possible to compete without state intervention. Strengths: The UK has a particularly good legal and policy environment, ranking better than any other country. Among its most significant advantages in this area are an extremely flexible labour market and a government which is very encouraging of private equity. Alongside its favourable regulatory environment, the UK has, proportionally, the highest level of M&A activity of any country surveyed, an indicator of excellent deal making opportunities for private equity firms. Weaknesses: The UK is one of the few countries in the OECD where R&D expenditure as a share of GDP has fallen over the past 20 years. Whereas the UK’s expenditure on R&D as a share of GDP, at 2.4% in 1981, was above the EU and OECD averages, it has now fallen to 1.9% of GDP. Source: Apax Partners, April 2006 Economics and Business Exchange Supported by Deloitte.