“It’s the return to the all-equity finance LBO and holistic financing solutions,” said Klaus Hessberger, co-head of financial sponsors in EMEA at JPMorgan Chase & Co. “We’re seeing some signs of liquidity in credit markets improving. Until we see a recovery though, I expect more minority and non-change of control transactions.”
Hot Spots
Target sectors in the new cycle will include infrastructure, health care and energy, according to bankers. These sorts of companies tend to find it easier to pass on higher costs to customers, making them attractive to private equity investors, they say.
“One specific deal category where I see a lot of interest is the combination of health care and software,” said Latham’s Hesse. “Funds love it because these businesses are scalable and have projectable recurring revenues in two growth sectors at the same time.”
While volatile markets have made investors more skittish and selective about the private equity firms they’re willing to give money to -- leading to longer fundraising periods and downward adjustments on targets for some -- firms with proven track records in the hottest sectors continue to secure commitments.
Nordic Capital, which likes investing in health care, has just hit its hard cap on a €9 billion ($9 billion) buyout fund. Apax Partners, which also targets health care, as well as tech, raised $10 billion in five months for the first close of its new flagship.
The immediate challenge for those with money to burn is to allocate these funds at a time when it’s only getting harder to predict where rates and company earnings will go, and without the crutch of easy leverage to juice any returns.
“The fact that buyers are becoming more price sensitive is not necessarily a bad thing,” said Hesse. “They are pretty good at finding businesses with sustainable strategies at any point in time.”
This article was provided by Bloomberg News.