Please talk us through the process of selling Clondalkin.
We mandated Deutsche Bank last year to help us find a buyer. We chose Deutsche Bank because of their considerable expertise in the packaging sector – Clondalkin converts specialist value-added packaging products. The auction attracted around 15 bidders, the majority of them private equity houses. Despite it not being the easiest market in which to sell assets, we were pleased with the outcome. Clondalkin has significant growth opportunities, particularly in the US, so it was appropriate that it was bought by Warburg Pincus, a major US private equity house.
You seem to be achieving more exits than most private equity firms at the moment – what's the secret to that? Or is it just coincidence?
The secret to achieving exits is to only buy what you can sell. There is no point reviewing a business's saleability after you've bought it We back companies with strong management teams that are number one or two in their sector, and have identifiable growth prospects. Such businesses will always find buyers, whether trade or financial – it almost doesn't matter at what the stage the economic cycle is. Where a private equity firm is in its investment/exit cycle is another consideration – our 1994 and 1997 funds have reached the ideal maturation point for exiting. Also, it is undoubtedly easier to sell businesses when the economy and the stock market are doing well. The 20 percent rise in the stock market over the last six months or so has helped to ensure we have made good returns.
What do you find are the advantages and disadvantages of selling to another private equity firm, compared with other exit routes?
Private equity firms are a savvy lot. They are geared up to making acquisitions quickly and efficiently, so the sale process can be very smooth. Trade buyers are not always geared up to making acquisitions, as it isn't necessarily part of their core strategy. At the end of the day, however, we are pretty indifferent as to who we sell to, as long as the price is right. An exit is an exit.
How strong a year do you foresee for the IPO market? What makes a good IPO candidate?
The IPO market appears to be coming back, or so we are told by the corporate financiers, who have a vested interest There isn't a huge amount of activity yet, but if the public markets continue to rise, then IPOs will be scheduled in for the second half of the year. The profile of an IPO candidate for the next 18 months or so will be a fairly sizable business, with a profile that is already high – ie a clear market leader, with a solid financial base, and relatively low risk.
What are the biggest threats to private equity investors in the future?
The biggest threats come from inexperienced buying. There have been swathes of newer entrants with small funds, mainly at the smaller end of the buyout market. There is a real danger that over-enthusiastic buying may bid up prices, and their limited exposure to investing over cycles will lead to a higher casualty rate. This will not be good for the image of the asset class. However, I believe that the overall future of the industry is good, with the market set to continue to grow over the next few years. This overall increase in size will help to maintain returns.
What is the biggest challenge for Candover over the next few years?
To continue holding our own at the top table of private equity in Europe. We plan to achieve this by rolling out our Continental European strategy and consolidating what we already have in France, Germany and the UK. We need to continue to cultivate our contacts network to enable us to second guess where the next deal is coming from, and be in the right place at the right time.