Private equity houses prepare to offload portfolios – Grant Thornton

PRIVATE equity houses are preparing to offload a significant percentage of their investment portfolios, a new study has suggested.

Grant Thornton said its research suggested that 85% of private equity executives expected to exit more than a quarter of their domestic portfolio companies in the next 12 months.

Mustafa Abdulhusein, partner in Grant Thornton’s Midlands corporate finance team and a private equity specialist, said: “Most private equity houses feel that the time is right to exit a significant part of their existing investments in the UK. Investors are also enthusiastic about new deal opportunities, particularly smaller public companies wanting to delist.”

The quarterly Private Equity Barometer surveys more than 100 private equity executives in the UK. It found that more than three quarters (76.5%) expected to exit up to 50% of their portfolio, with 14% expecting to exit up to 100% of their portfolio. Only 10% did not expect any exits.

In terms of exit routes over the coming 12 months, 76% of private equity respondents plan to complete a sale of portfolio companies to trade bidders, while 49% plan to complete a secondary buyout and 14% said they would exit at least one portfolio company via an initial public offering (IPO).

Meanwhile, the number of new deals is likely to rise: 67% of respondents expect the volume of new private equity investments in the coming 12 months to increase, compared to 27% who expect them to stay the same. Only 6% expect to see a decrease in private equity activity in the coming months.

“The total value of private equity investments in Britain has risen dramatically this year and we also expect the volume to pick up. Grant Thornton UK has advised on more than 20 private equity deals in the first half of 2010,” said Mr Abdulhusein.

In terms of type of investments, 15% of private equity respondents said they were planning to invest in publicly listed companies over the coming 12 months, while 87% planned to invest in buyouts compared to 43% who are looking to take a minority stake.

“Given the turmoil the market has faced, there has been significant shake-out in the industry. Even though most of the respondents expect there to be fewer private firms in future, very few believe that their own firm will cease to exist. In fact, most still expect to achieve exceptionally high returns on their investments,” added Mr Abdulhusein.