HgCapital revels in seller’s market

The firm returned 3.4 times as much money back to its investors as it called from them in the first half of the year, according to its listed feeder fund’s results.

The results of London-listed investor HgCapital Trust give a window into the “frothy” seller’s market in private equity.

The trust, which invests in funds managed by HgCapital, received 3.4 times as much money back in distributions as it managed to invest in H1 2017, according to its H1 results. It invested just £40 million ($53 million; €44 million) in the first half – £11.5 million of which was through a co-investment – while it received £134 million in proceeds from exits.

Realisations for HgCapital in H1 included the €400 million sale of utility metering business Qundis, which generated a 3.5x investment multiple and 30 percent gross IRR over a five-year investment period, and the sale of vehicle leasing business Zenith to Bridgepoint for €750 million, generating a 2.9x investment multiple and 46 percent gross IRR.

The results highlight the increasing difficulty of remaining invested in private equity industry today as distributions continue to outpace investments. In August, Private Equity International noted that US public pension California Public Employees’ Retirement System would struggle to maintain its allocation to the asset class unless it could up its investment pace.

HgCapital Trust also noted that lofty valuations applied to the firm’s recent exits mean that the top 20 buyouts remaining in its portfolio are now being held at an average enterprise value of 16x EBITDA, up from 14.2x at December 2016.

HgCapital Trust ’s top 20 buyouts generated 19 percent EBITDA growth and 11 percent revenue growth over the past 12 months, according to its H1 results. The trust also reported several write-downs during the first half, with Kinapse, Frosunda and Radius among those performing below or behind plan.

“Most businesses in our portfolio continue to achieve high rates of growth in both revenues and profits,” Roger Mountford, chairman of HGT, said. “This provides strong evidence of the potential for continuing, consistent growth in value for the benefit of shareholders.”