Private equity houses steer clear of consumer sector

PRIVATE equity firms have singled out the consumer sector as having plunging valuations and being most at risk of financial distress while healthcare, business services and energy are seen as a safe haven, according to a new report.

Research by accountants BDO Stoy Hayward shows that although 96% of investors have already reduced prices paid for all businesses, more than half ranked the consumer sector first for seeing the highest falls in value.

Additionally, 65% of investors identified the sector as being the most susceptible to financial distress and an accelerated sales process.

Respondents highlighted business services (26%) energy and renewables (19%) healthcare (17%) and technology (17%) as sectors most likely to see mainstream private equity support for existing investments in terms of buy and build strategies in 2009.

In addition, the energy and renewables sectors are singled out by respondents as those most likely to see growing valuation multiples in the next 12 months.

Despite the crisis facing the consumer sector however, the prospects for big return dealshave never been better for bold investors if they act quickly and are prepared to use equity instead of debt to acquire cash-starved businesses.

Tim Clarke, corporate finance partner at BDO Stoy Hayward in Leeds, said: “On the face of it, the consumer sector should be one of the least attractive for private equity investors in 2009.

“However, to ensure their survival, some companies in this sector could be forced to sell cheaply and they will represent very attractive opportunities for well funded investors.”

He added: “Private equity firms can provide an equity lifeline and will be in a unique position to buy up struggling companies that don’t have access to the funds required to trade through the downturn.”

The Private Equity Mid-Market survey explores the views of private equity firms and 100 UK mid-market companies backed by private equity.