Charles Soulignac: banking chaos has changed buyouts

The chairman of Paris-based fund of funds and secondaries firm Fondinvest Capital says even 'post-crisis', the financing for large private equity deals will never be the same again. He also predicts LPs will invest in smaller amounts and sell interests in old funds.

How will the global financial crisis affect private equity fundraising over the next 12 months?

Charles Soulignac, chairman and chief executive of Fondinvest Capital, a fund of funds, secondaries and separate accounts manager, said:

“The banking context will not make the completion of large-cap deals easy. Large funds will keep completing mid-cap transactions, as they have started to do. Some of these funds will have the necessary financial capacity to wait for the post-crisis exit stage and they will then once more target large-cap deals reminiscent of 2004-2005. However, the context will not be the same anymore.

Charles Soulignac

Small- and mid-cap transactions will be completed with greater selectivity. Bankers will be very willing to finance well-performing companies – especially when they are existing clients – in order to avoid decreased market shares and resources. However, LBO deals will be subject to highly reduced leverage and to very strict covenants.

The years 2010/2011 are therefore expected to be very favourable to the completion of deals in well-performing companies.

Some of these small- and mid-cap funds will reappear in the market at the beginning of 2009 to raise funds. But will they manage to do so?

LPs will keep investing into private equity. However, they will be subject to some constraints regarding their total assets. This will result in the sale of interests in old funds, re-investments in well-known funds, and a decrease in new commitments to large-cap funds.”

Soulignac shared his perspective as part of the upcoming Fundraising Compendium in sister magazine Private Equity International.