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Public versus private

At a time when private equity confidence is already somewhat wanting, recent wobbles in the European IPO market have made clear that little support will be coming from public market investors.

Recent coverage in the financial press made it look as though private equity firms need to be adding an extra layer to what many would regard as already thick skins.

Whether it was the delay of the Punch Taverns IPO, the 25 per cent cut in the Alfa Laval offer price or the selling of Go, allegedly out from under its management, there was a private equity firm in the frame who was being portrayed as the villain. And all of this was coming at a time when the market is still in the mood to turn a wobble into a tremor into an earthquake.

It's not just Texas Pacific or Industri Kapital or 3i who were getting caught up in this jumpy, accusatory mood. There's a broader movement at large suggesting that the private equity industry as a whole is trying to get others to make up for the self-inflicted injuries caused by its excesses when investing in the technology sector. ?You guys dug yourself into that hole and now you're expecting the public markets to throw you a lifeline,? goes this thinking.

Private equity firms could do without this kind of scapegoating at the moment – not least because much of it comes from critics who have their own agendas in mind. These include public equity investors working the price talk to push down the launch price.

These same investors are also more than a little tempted to take a shot at those alternative asset managers who have for too long trumpeted their startling IRRs – a temptation further encouraged by the more recent decline in private equity's performance figures.

To some here's a chance for some payback. Commented one major UK public equity investor whose preferred methodology is index tracking: ?The private equity funds have either been naive or greedy: the outcome of these offerings (HMV, Alfa Laval, Punch) are all evidence of the real world of the stock market today.?

Schadenfreude aside, there's an important point here. The recent events, and the widespread response to them, will have done nothing to bolster private equity firms' confidence that there are deals to be done now. As any adviser to these firms will tell you (a theme discussed in detail in the M&A feature on p. 42 of this issue), there are a huge number of transactions in the pipeline in terms of M&A and listing work across Europe but hardly any of these are coming to fruition. One adviser we talked to complained: ?Until there's some clarity on valuations, on financing and on exit alternatives we're going to see only a small drip-drip of actual transactions.?

It's not as if general partners are short of resolve though: there was really never any question that 3i would sell Go to easyJet for example.

But like so many instances when market sentiment creates a sense of self-fulfilling inevitability, there is a risk that private equity investment activity will remain stuck in low gear until the cycle moves on and the markets regain some composure. If that's the case then expect a slow ride for the rest of 2002.