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Issues and trends within the industry

Your challenge, our response

Despite encouraging signs of recovery, private equity stakeholders continue to face many challenges. We discuss some of the key issues with industry experts from across our business;

Question 1: With tough market conditions could you comment on the outlook for private equity over the next 12 months?
Question 2: What is the outlook for mid-market deal activity in 2010?
Question 3: How should private equity stakeholders respond to the contraction of debt markets?
Question 4: What are the Sustainability market risks and opportunities for private equity?
Question 5: How can private equity investors and portfolio companies improve their consolidated reporting through the audit process?

 

arrow   Question 1: With tough market conditions could you comment on the outlook for private equity over the next 12 months?

Our response
"We have seen some increase in deal activity, which is very encouraging, but whether it is a sustainable recovery is too early to say. Current transactions have much higher levels of equity than previously seen, we are seeing new types of structures, but the underlying theme remains that raising new debt for deals is challenging. Meanwhile, within PE backed companies we have seen some great examples of how management together with their PE sponsors have responded quickly and decisively to market challenges - validating the thesis around PE companies being more flexible and responsive."

 
Timothy Mahapatra   Timothy Mahapatra, Partner
Head of Transaction Services
Tel: 020 7007 0870


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arrow  Question 2: What is the outlook for mid-market deal activity in 2010?

Our response
"Clearly mid-market deal flow has also fallen in the last 18 months in line with the rest of the PE and M&A market. However, debt levels and valuation multiples have traditionally been lower in the mid-market. This means that confidence will return more quickly for mid-market deals. Mid-market PE houses and private vendors are also more likely to consider minority interest deals as well as full change-of–ownership deals. We are also receiving strong interest in UK assets from overseas trade buyers, although this frequently adds to the time required for longer-term preparation and relationship building."

 
Mark Pacitti   Mark Pacitti, Partner
Head of London Advisory
Tel: 020 7303 5871


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arrow  Question 3: How should private equity stakeholders respond to the contraction of debt markets?

Our response
"Liquidity continues to be an issue, not least because banks can lend to listed corporates more profitably with less risk, which sucks liquidity in the market away from the private equity sector. In addition, leverage multiples have significantly reduced and margins charged are escalating, with facilities granted over shorter periods. For private equity, preparation and early assessment of the key issues is fundamental to achieving an optimal refinancing outcome."

 
Fenton Burgin   Fenton Burgin, Partner
Debt Advisory
Tel: 020 7303 3986


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arrow Question 4: What are the Sustainability market risks and opportunities for private equity?

Our response
“Environment, social and governance issues are clearly recognised by mainstream capital markets and are the subject of increasing focus within private equity firms keen to de-risk and create value within their portfolio investments. This is in the face of increasing pressure from stakeholders, such as institutional investors, for greater transparency, emerging policy and legislation associated with climate change and carbon, changing consumer patterns, unfavourable media coverage and the physical impacts of climate change.”

 
Cindy Cahill   Cindy Cahil, Partner
Enterprise Risk Services
Tel: 020 7007 2139


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arrow Question 5: How can private equity investors and portfolio companies improve their consolidated reporting through the audit process?

Our response
"Through our work with portfolio company management teams and their PE sponsors, we understand the importance of cash and working capital management, the critical nature of covenant compliance, the need to think about exit readiness and the focus on financial track record. As a result, we have developed a process of audit reporting specifically designed to focus upon these areas – to truly add value to the “traditional” audit. The commercial nature of our observations engenders a high degree of engagement from Boards and their PE sponsors, particularly when we are able to benchmark our reporting across multiple jurisdictions or portfolio companies."

 
Emma Cox   Emma Cox, Partner
Audit
Tel: 020 7007 0635


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