Private equity firms find it hard to exit

Negative sentiment in the European capital markets puts the brakes on IPOs and trade sales.

Private equity companies and venture capitalists found it more difficult to exit their investments in the second half of 2000 than in the first six-months of the year. IPOs involving private equity companies dropped by more than 26 per cent and trade sales dropped by 42 per cent, according to research published by Zephus Corporate Finance Knowledge.

After hitting a peak in the first half of 2000, the number of exits through IPO fell from 45 to 33 in the second half. The research also reveals that trade sales, the most popular exit route for venture capitalists, have been the most hard hit, with the figures falling from 175 deals in the first half of the year to just 100 in the six months to December 2000.

Secondary buyouts however increased from 27 to 44 during the period. This figure is significant because in the previous two six-month periods, the figure for secondary buyouts remained static at 28 and 29 deals respectively.

Michael Folkman, development director of Zephus, said: “The most obvious influence has been the negative sentiment in the European capital markets during the second half of the year. Not only has this made an impact on the level of new issues, it has also impacted the ability of quoted companies to make acquisitions using their own shares. With no discernible improvement in the capital markets this factor looks set to drive the growth of the secondary buy-out market in 2001.

Key secondary buyouts in 2000 included BC Partners’ purchase of General Healthcare from Cinven in a £1.28bn deal.