Advent. Apax. BC Partners. Cinven. CVC. Permira. Europe’s remaining homegrown big guns. Three years ago, it appeared they were destined for annihilation, or so doomsayers – and mid-market GPs – would have had us believe. But despite the demise of Candover in the immediate aftermath of the crisis – and serious strain at some of the firms that loitered on the periphery of the big boys’ playground, among them Terra Firma and Lion Capital – the systematic dismantling of the mega market that many predicted has notably failed to materialise.
Indeed, in many respects, these behemoths of buyouts have proved themselves spectacularly adept at adaptation. There have been failures, certainly. Gala Coral, Seat Pagine Gialle, Borsodchem. But far from pre-packed i-banking mandates and labyrinthine leverage structures eroding basic investment skills, these firms have, more often than not, demonstrated the depth of experience and dexterity that enabled them to get to the top of their game in the first place.
New deal activity has slowed, naturally, and deals are somewhat smaller, but investment hasn’t fallen off a cliff. Cinven has completed no less than four transactions in the past year. Permira has managed six.
And while debt constraints have clearly had an impact, mega buyout firms have been able to rustle up financing packages, in some instances, of close to half a billion.
Finding exits for these giant assets hasn’t been easy and a number of processes have fallen over – think New Look, Evonik and Birds Eye Iglo. But American import KKR certainly demonstrated creativity and flair when it got away – in part, at least – the biggest of them all in Boots.
Yes, they may have recklessly rode the debt wave that ultimately crushed the global economy. Yes, a handful of them – maybe more – are arrogant egotists. But most are also pretty damn good at what they do.
In hindsight, then, the heralding of a mega market apocalypse appears to have been a little premature. Or was it?
The problem, of course, is fundraising. LPs haven’t abandoned the mega model in their droves by any means. Returns will be down, certainly, in all probability some way down. But investors are realists and their options are slim.
Private equity remains attractive, in relative terms, and the length of track record and depth of resource that characterise big buyout firms have lasting appeal.
There is no doubt, however, that the sum total of money entering the asset class is diminished. Ticket sizes are smaller and, crucially, institutions are paring back their relationships. At the same time, economics, and in no small part ego, mean mega buyout houses are unwilling to pare back their ambitions.
These firms may be doing a pretty good job given the circumstances, but there just isn’t enough capital to keep them all in the style to which they have become accustomed. And I predict that at least one, and possibly more, of the surviving six will fall.
With €6.5bn in the coffers, BC Partners seems safe, for now at least, although the long-term implications of the deals struck with LPs remain to be seen. Few doubt, meanwhile, that private equity darling Advent will fail to pull through.
Cinven’s €5bn climb is taking its time, but then this firm’s steady-Eddie approach is its calling card. The altogether more aggressive CVC has big ambitions, with an €11bn target, as well as long-term succession issues to resolve, but with Advent, BC and Cinven out of the way, the firm should soak up much of the remainder.
Which leaves Apax and Permira. Apax is roughly halfway through its €9bn ascent, thanks in part to a sovereign wealth fund injection. But operating performance has been patchy and personnel change significant. Permira, meanwhile, has picked itself up and dusted itself off after a fairly disastrous start to the downturn. But despite this admirable turnaround, LPs so far seem unimpressed.
Europe’s mega buyout houses are its oldest and most venerable private equity institutions, but longevity does not guarantee you survival. The sword of Damocles hangs by a thread. Who knows when it will fall.