Large Corporate Buyouts Fall out of Favour

Major corporate buyouts by private equity firms are becoming less popular , according to the London-based private equity group Coller Capital. Its latest survey suggests that 88% of institutional investors in alternatives do not plan to step up investment in large buyouts over the next two to three years.

Large buyouts were “the darlings of the asset class pre-financial crisis,” said Mike Alfano, principal in Coller’s New York office. “Now investors are showing less interest in large buyouts.”

The group issues the
‘Global Private Equity Barometer’
, a twice-yearly survey of institutional private equity investors. Alternative investment research firm Arbor Square Associates surveyed 140 private equity investors worldwide for Coller in February and March, with large buyouts defined as deals valued at US$1bn and above.

The survey also found that pension funds and insurance companies intend to allocate more money to those fund managers who are addressing Europe’s drought in bank lending by providing direct corporate loans. They regard locked-up private debt vehicles provided by fund managers as a means to achieve higher yields than are available in the liquid bond market, where yields have hit all-time lows this year. Around one in three investors intends to increase their long-term exposure to credit investment over the next year.

Half of the investors surveyed said they either had invested in private debt funds or were considering it, more than the proportion who said they had investments in venture capital. Coller reports that the number of private debt funds has grown tenfold since 2009, from about 10 to more than 100 last year.

The survey also found that one in four of the investors surveyed plan to increase their long-term exposure to private equity, with only 12% planning to reduce it. However, one in three is slowing the pace of fresh commitments to new funds because they have not yet received enough distributions from previous ones.

The majority of investors have maintained faith in Europe. About 63% expressed continuing confidence in the region and agreed that there will be “attractive investment opportunities in certain parts”, mostly in the northern countries.

Survey respondents were less keen on publicly-traded private equity firms, with 68% of investors surveyed saying they find the funds of general partners that have gone public to be less attractive, with only 3% finding the funds of publicly traded general partners to be more attractive. The remainder indicated that whether a private equity firm is publicly traded is not an important or deciding factor.


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