The Barometer demonstrates the most positive exit environment in years and reflects the need for private equity firms to achieve returns from successful divestments in order to attract new investors and raise further capital.
The quarterly survey of more than 100 private equity executives in the UK shows that 57% of respondents plan to exit more than a quarter of their portfolio companies in the next 12 months. Only 10% don’t plan to sell any portfolio companies while 33% plan to exit less than a quarter of their investments.
By contrast, only 7% said that they planned to exit more than a quarter of their portfolio in Q1 2010.
Mo Merali, head of Private Equity at Grant Thornton, said:
“We haven’t seen such a surge in planned exits in years - more than half of UK private equity firms expect to sell more than a quarter of their portfolio. They are encouraged by improving exit conditions, with strategic investors increasingly prepared to outbid private equity players.
"This was the case with Kiddicare, where we ran a highly competitive sales process and received around 20 initial offers from a mix of private equity and trade players with Morrisons tabling the best offer.
“The surge in planned exits is also driven by the need of many private equity firms to demonstrate their ability to successfully cash in on investments before they hit the fundraising trail.
"It is remarkable that most funds are planning to attract so many new investors. Almost 60% of respondents expect more than a quarter of limited partners in their next fund to be new to their funds,” continued Merali.
Private equity firms switch sector preferences
In terms of sector preference, almost half the respondents (47%) see business support services (BSS) including infrastructure and logistics as a key investment focus over the coming twelve months.
Surprisingly, consumer, retail and food shared the accolade of second most coveted sector with high technology including software and IT. 37% of respondents expect to focus on both sector groups this year, compared to only 21% who said they expected to be most active in the consumer sector when asked a year earlier.
Merali concluded:
“Private equity firms are aggressively pursuing higher returns, which knocked the healthcare sector off its pedestal. Only about a quarter of private equity firms expect to focus on healthcare, pharmaceuticals and medical investments this year compared to 50% who said that they would do so when asked a year earlier.
"Some private equity firms have turned their backs on healthcare because of the uncertainty surrounding government policy on healthcare coupled with the fact that valuations in the healthcare sector are expected to be the highest at 7.5xEBITDA."
