The bleak predictions coming out of top private equity dealmakers are starting to pile up, as the industry braces for the dismal task of writing down the value of portfolio companies purchased at sky-high valuations in 2006 and 2007, when easy debt made almost any deal seem like it could be profitable. Charles Sherwood, a partner at U.K. buyout shop Permira, predicted that it would take a "mathematical miracle" for any equity value to be left in many of the deals from that heady period,
according to the Financial Times.
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"A lot of these transactions were done at fairly full prices and even
in some cases at premiums to listed valuations, and since then those
markets have fallen about 50%," Sherwood said at a private equity
conference in London Tuesday. "It would require a mathematical
miracle or a mathematical fantasy" for there not to be significant
write-downs on private equity portfolios.
Sherwood's gloomy comments follow in the footsteps of those made
recently by other private equity dealmakers. Last week Guy Hands, the
CEO of U.K. buyout shop Terra Firma Capital Partners, had
even worse
news for his peers, predicting finger-pointing, regulation and
evaporation of returns.
"[Governments] are unlikely to encourage those banks to lend to
private equity firms, and will insist on tougher terms," Hands said.
"Unfortunately, as recession deepens, the world is looking for
scapegoats, and we're most certainly easy targets."
With their ability to put money to work already hamstrung by frozen
credit markets, buyout shops are also facing uncertainty from limited partners about whether they can make capital calls due to losses in stock
markets. All this while the buyout firms deal with the economic slowdown
sapping the ability of their portfolio companies to grow. No wonder Sherwood, Hands and others are offering gloom and doom predictions. -
George White
See story from the Financial Times
See Dealscape post on Guy Hands
