Buyout firms face extinction in fight for funds

Wed Feb 29, 2012 8:43am EST
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By Simon Meads and Greg Roumeliotis

BERLIN (Reuters) - Private equity firms looking for billions of dollars of new capital for deals are facing a fight for survival in the hunt for a diminishing pool of capital - and losers risk a slow death.

Fundraising has been subdued since the credit crisis. In 2011, private equity firms raised just $263 billion for deals, less than half the $600 billion they pulled in every year at the peak of the buyouts boom.

Massive inflows of capital and benevolent financing markets fuelled a spate of mega buyout deals including TXU, Alliance Boots and Hilton Hotels from 2005 through to 2008.

But risk aversion, a lending freeze and economic woes have drastically reduced investors' appetite to fund new deals.

Though worst fears about a wave of defaults have not materialized, the performance of companies bought out during the boom period has been patchy and firms face a long slog to get their money back on many of the largest deals.

"In Europe, probably more so than in the rest of the world, the amount of funds raised will be substantially lower. My guess is probably a third of what was raised in the boom times," Guy Hands, chairman and chief investment officer of Terra Firma, told the SuperReturn private equity conference in Berlin on Wednesday.

BC Partners BCPRT.UL last week said it had raised 6.5 billion euros for its latest buyout fund, more than originally expected. But the environment is fiercely competitive.

Apax APAX.UL, Permira PERM.UL, Cinven CINV.UL, KKR (KKR.N: Quote), Warburg Pincus WP.UL, and Providence are all looking to raise multi-billion euro pools of capital.   Continued...