Investors bank on more exits

UK institutional investors have told a survey they expected private equity firms to benefit from improved exit opportunities in the near future, despite tough economic conditions.

50 per cent of UK institutional investors participating in a survey run by RSM Robson Rhodes, the consultant, and Mergermarket, said they expected the number of private equity exits in Europe to increase in the next six months.

79 per cent of the 40 investors polled also said they expected secondary buyouts to become more common as an exit route, as the IPO market remains practically closed and trade sales continue to be slow. 65 per cent of the participants said such an increase in secondary buyouts was an encouraging prospect for investors.

According to Sukhbinder Heer, head of corporate finance at Robson Rhodes, investors’ optimism is in part driven by a perception that private equity firms are now putting greater emphasis on the need to realise investments than they did in the past.

More focus on exists among private equity managers is also reflected by Mergermarket’s finding that holding periods of private equity investments have recently gone down. Analysing fully disclosed exits from European private equity firm with a transaction value of between £100m and £200m over the past two years, the survey found that investments sold in 2002 had on average been held for 43 months, against 57 months in 2001.

Trade sales remained the most common form of exit, although down 11 per cent from 2001.

However, surprisingly given investors’ overall optimism regarding divestment as documented in the survey, and despite last year’s evidence of private equity firms moving investments to exit sooner, Robson Rhodes and Mergermarket also said 64 per cent of investors told the poll they expected the average length of time that private equity firms hold investments to increase.