Candover Takes a Forced Timeout

April 7, 2009

Pan-European buyout house Candover is suspending investing from the fund it raised in 2008 for the next six months in order to “explore options for it’s future”. At this point, it’s options seem most likely to be either a competitor buying out the firm, or to simply wind-down Candover altogether with a skeleton staff selling off the portfolio companies. If it were to end, it would be a fizzle of an finale to a firm that was founded back in 1980 and listed on the exchange in 1984. 

To say Candover has had a tough go of things since the start of the financial crisis would be a horrendous simplification of the situation. Cracks began to show after the company failed to make good on its €1 billion commitment to the €3 billion 2008 fund. It’s already written down the value of its portfolio by more than one-third (from £483.6 million in December 2007 to £310 million), and six of the firm’s 22 investments have been written down to zero. 

Speaking of the 2008 fund, the only investment it’s made so far is the £1.6 billion acquisition of oil services company Expro International in April 2008 (have to point out that this deal was made jointly with Candover’s 2005 fund). From here on out, LPs will pay management fees based only on the Expro investment rather than the full value of the fund’s commitments.

On a positive note (sort of), Candover’s share price rose 17% on announcement of the six-month hiatus.


Debt Innovations in Europe from KKR

April 4, 2009

They say nesessity is the mother of innovation. Then it’s times likes these that act as a maternity ward. In a restructuring deal that could be replicated across Europe, a private-equity consortium led by U.S. buyout shop Kohlberg Kravis Roberts has slashed the debt of Dutch semiconductor company NXP by nearly 10% after having $465 million of loans written off at no cost to the buyout firms’ equity.

Bought for €6.4 billion ($8.5 billion) in 2006, NXP sought to reduce its debt ($3.8 billion of US-denominated debt and €1.5 billion of euro-denominated debt prior to the restructuring) after revenue fell 25% last year to $979 million. 

The twist: In a restructuring, a buyout firm is typically expected to inject additional equity to reduce the level of debt in a company. Instead, the NXP restructure involved lenders writing off some of the nominal value of their junior debt in exchange for a higher place in the capital structure. This appeases lenders because, although they cut the nominal value of the debt they own, they acquire debt that is less likely to default. The higher priority debt can be higher in value on a mark to market basis than the distressed junior debt they previously owned. The restructuring reduces NXP’s interest payments by €30 million ($40 million). Pretty crafty!

This transaction is one of the first significant debt reductions involving no additional cash injections by a sponsor in Europe. It’s certain to not be the last.

Meanwhile, the Deal Professor takes a longer look at a situation back Stateside that got a bit contentious.

Charterhouse Closes Ninth Fund on €4 Billion

April 3, 2009

European Private Equity firm Charterhouse has closed its latest buyout fund, Charterhouse Capital Partners IX, on €4 billion – €2 billion short of its initial target.

The firm held a €3.6 billion first close of the vehicle late last year and had been targeting €6 billion. While this figure is significantly off the orginal mark, the now fully closed total does mean that the fund is the same size as its predecessor. And with fundraising at a six-year low that’s not nearly as bad as it seems.

European Private Equity Returns Fall 25% in 2008

March 13, 2009

According to data published by the EVCA and Thomson Reuters, Private Equity returns in Europe dropped 25% in 2008. Large-cap buyouts were hardest hit over the short-term, with a fall in net asset value of 27.1% to year-end, while mid-cap buyouts were 17.9% down for the year.

That being said, there’s always a silver lining.  Despite the slump in so-called short-term horizons, annualised private equity returns or the internal rate of return (IRR) – which tracks returns from the funds’ inception to December 2008 – were up 10.3% in 2008, with buyout funds returning 14.2%.

European Private Equity Fundraising Drops 20% in 2008

March 13, 2009

According to the EVCA, European Private Equity funds raised €65.3 billion last year, a fall of 20% when compared to the €81.4 billion they raised in 2007. For the year, 128 funds reached a final close, down from 144 in 2007. Average fund sizes also tumbled, from €496.9 million in 2007 to €425.7 million in 2008.

Venture and Growth Capital proved to be fundraising bright spots as 47 VC funds reached a final close (compared with 37 the previous year), with an average fund size of €84.7 million. For Growth Capital, ten funds raised nearly €3 billion, compared to nine funds raising €2 billion in 2007.

The number and value of buyout funds fell from 62 funds that raised €56.5bn in 2007 to 53 funds raising €44.4bn last year. And in terms of the sources of capital raised, pension funds were by far the largest contributor, accounting for 23% of all funds raised or €15.2bn, compared with 17% and €13.9bn in 2007. At the same time bank commitments halved from just over €9bn to €3.8 bn.  

Additonally, the EVCA included numbers on exits which, when measured at cost, were reduced by halve in 2008, from €26.6 billion in 2007 to €13.1 billion, with trade sales and secondary buyouts representing two-thirds of the exits. Unsurprisingly, the public markets were effectively closed with only nine IPOs occuring, six of which were venture-backed companies and three buyout-backed.

Argos Soditic’s Mid-Market Index: European Private Mid-Market Deals: Collapse of Activity, Continued Decline of Valuations

March 9, 2009

While the title of this installment is quite the mouthful, the lastest Argos Mid-Market Index, which in it’s own words measures the evolution of European private mid-market compant valuations, does a good job of reinforcing to the reader what most in the business already are experiencing themselves: Declines in deal values and deal volumes, but continued stability in LBO acquisition multiples despite M&A activity becoming MIA. Carried out by Epsilon Research for Argos Soditic, it’s published every six months. Well worth a read for anyone interested in Euro-zone dealmaking:

A big “Thank You” to Karel Kroupa (H.2003) of Argos Soditic for sending it over.  It’s much appreciated!  I also like that it’s in French and English. If only the AFIC would take note and do more of the same…

European Private Equity to Get Regional Code of Conduct

February 26, 2009

The European Commission Conference on Private Equity and Hedge Funds met today (Private Equity was the focus today, hedge funds tomorrow.  It’s a least a step in the right direction that Internal Market Commissioner Charlie McCreevy got the commission to recognize that the two industries are in fact unique and separate…although I’m sure there are still quite a few socialists in denial about that bit of reality).

The EVCA is offering to accept an oversight and enforcement regime for a regional code of conduct as the industry has apparently recognized the need to move to a “supervisory model” from a system of self-regulation.  

The EVCA also submitted a report that found that private equity and venture capital can help overcome the current funding crisis and contribute to the recovery of European economies (amen! There’s been much talk concerning this in the US, see any of the recent debate about Thomas Friedman’s editorial from this past weekend just for starters, and yet Europe has been slow to see the situation in the same light. Am I surprised by this? No. But come on Europe, it’s time to wake up) that the industry is already highly regulated at national and EU level and does not pose systemic risks, and that private equity is a distinct type of investment and is markedly different from other investment strategies, particularly hedge funds. 

The submission concluded that the regulatory framework should consist of unified professional standards and an effective enforcement regime with oversight by the appropriate EU or national supervisory bodies. 

Many national Private Equity associations have adopted guidelines of their own, however the problem has been, as with much else in Europe, a resulting effect of 27 different approaches with varying degrees of success. And given the bewildering level of attention that a certain Scandinavian leftist member of the European Parliament wishes to attract on this subject, this is an issue that’s far from over!