Industry executives at an annual conference in Germany have begun the debate on their prospects now the mega buyout boom has stalled. The media frenzy, which followed the buyout jamboree last year, has abated. PEO rounds up the reports.
UK turnaround firm Alchemy Partners’ Jon Moulton said in a characteristically bearish speech opening the SuperReturns conference in Munich: “The industry needs to prepare for bad news.”
Markets couldn't be worse in terms of the number of deals available.
Moulton argued that the height of the buyout boom had led to parts of the industry behaving like US subprime mortgage lenders. “The quality of what we were doing went down, there was no checking and we used false numbers,” he said. Moulton pointed to vendor due diligence and the use of “pro forma, normalised, adjusted EBITDA figures” to inflate values. Moulton said he expected industry returns to tumble.
But others were less pessimistic. David Rubenstein, from US investment firm The Carlyle Group said: “I don't think defaults will be as large as they were during previous periods of distress. Banks are much more flexible and there is much more expertise in buyout firms than there was before.”
“Private equity has not seen the high water mark,” he said. “The industry will come back stronger.”
Johannes Huth, Europe head of US buyout firm Kohlberg Kravis Roberts, said mega buyout firms’ size and scope would help them profit in the downturn. Steven Puccinelli, the head of European private equity at Middle Eastern firm Investcorp, said, “Markets couldn’t be worse in terms of the number of deals available to private equity.” But he said: “There are not a lot of deals to do in the mid-markets or super-deals, but we have work to do.”
Leon Black, the founder of US firm Apollo Management, talked up the buyers’ market the credit crunch had provided for his firms’ distressed debt arm, “You can get equity-type returns from debt instruments that may be a better play than pure equity right now, where you can’t get leverage,” he said.
Apollo is reportedly on the lookout for distressed debt even in its own portfolio companies, according to UK newspaper Daily Telegraph. The firm is considering buying the debt backing its £1.1 billion (€1.5 billion; $2.2 billion) acquisition of UK real estate company Countrywide, which is trading well below par in the secondary market.