Barren M&A landscape leaves buyout shops invested for longer

Michael Bow
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FALLING sales of private equity-backed businesses has led to buyout firms holding onto firms for record amounts of time, figures out today show.

Exits made by private equity outfits fell nearly a third from 81 to 65 last year, professional services firm Ernst & Young said today, suggesting an average holding period of 13 years for private equity firms to sell an entire portfolio.

The proportion of European companies stepping forward to buy private equity-backed firms has also plunged, with just 10 of the 25 trade sales – just under 40 per cent – last year involving a European trade buyer.

“This is the lowest percentage ever recorded in our study, a clear demonstration of the lack of confidence European corporates experienced in pursuing M&A strategies,” Ernst & Young‘s private equity leader Sachin Date said.

Secondary sales to fellow private equity groups were the second most popular exit last year, with flotations the least popular, with just three exits.

The surprise fall in exits last year comes on the back of three consecutive years of exit growth between 2009 and 2011, amid a dismal economic environment.

Operating profit growth for private equity owned firms between 2010 and 2012 hit 5.3 per cent, today’s statistics show, versus 15.2 per cent in the 2005-2007 boom years, mirroring a similar fall in publicly owned companies.

Despite the tough trading environment, the report shows average employee numbers for private equity-backed companies increases at the same pace as publicly-backed companies.

Privately backed company employee numbers increased two per cent annually, versus 2.2 per cent for public firms for 2005-2012.