PE firms negative on 2013
07 December 2012
By Hui Ching-hoo
Private equity (PE) firms worldwide are forecasting a tough year for fundraising, which has brought about cautious attitudes toward deals, according to a survey conducted by Grant Thornton.
The assurance and advisory firm interviewed 143 PE firms worldwide between July and September this year. Seventy two percent of respondents described the current fundraising environment as ‘negative’ or ‘very negative’, an increase of 59% from 2011. Fifty six percent of respondents in China expected a decrease in deal making.
Eugene Ha, a partner of advisory services at Grant Thornton Hong Kong, says: “Despite the drop in optimism for China, the country remains at the top of the list for many PE firms. However, validating the track records of target companies is crucial in attracting new investment. With this, there is no doubt that limited partners are spending more time and attention on due diligence.”
Mr. Ha adds that China’s PE industry has become increasingly rational over the past few years, noting that an increasing number of Chinese PE firms prefer trade sales to IPO exits as a result of the market downside. The firms expect the industry to continue benefiting from the development of Mainland capital markets in terms of corporate governance and market practices.
Separately, the global outlook on existing investments is negative for the coming 12 months, with only 47% of PE firms expecting an increase, compared to 62% last year. Trade sales continued to be the most prevalent method of exit (55%), followed by secondary buyouts (38%). Expectations for IPO exits fell 50% to 7% from last year, suggesting that IPO activities will face further declines in the coming year.
The survey also indicates that home bias is disappearing amongst PE firms as they look across borders for exit routes, in particular to overseas buyers.
Mr. Ha says market sentiment for the PE industry is unlikely to see any signs of recovery until the third quarter of 2013 when the IPO and equities markets begin to bottom out.
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