Private equity firms bullish on 2010 outlook

Sun Jan 31, 2010 4:18pm EST
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By Martin Howell

DAVOS, Switzerland (Reuters) - The heads of three of the largest private equity firms in the world expressed optimism that 2010 will be a stronger year for acquisitions and for sales of companies already in their portfolios.

However, in interviews with Reuters while attending the World Economic Forum in Davos in the past few days, they had varying views over whether the size of deals could start to head back up to the $10 billion mark, or even above, from the post-financial crisis limits in the $3 billion to $5 billion range.

David Rubenstein, the co-founder of Carlyle Group CYL.UL, said he sees all the four key metrics for the business taking a "fairly dramatic move in the right direction.

"More deal volume and value, much more on distributions, much more in terms of fund raising," he said, adding that the valuations for private equity holdings had now risen for four successive quarters.

During the financial crisis, private equity firms were largely locked out of the credit markets making it tough for them to finance leveraged buyouts, while the equities markets were so weak that initial public offerings of existing investments became very difficult.

However, in the past six months the credit markets have opened up more, at least for small or medium-sized deals, and the recovery in stock markets has made IPOs achievable once again.

Stephen Schwarzman, chief executive of private equity giant Blackstone Group (BX.N: Quote), said that typically the first year of economic recovery after a recession has been a good one for making private equity investments. "Historically, the returns have been double or triple what they were at the top of the economic cycle," he said.

This time may be a bit different because the economic recovery is likely to be more muted than after previous downturns, which means the firms may have to hold the investments longer to make the same returns, he said.   Continued...