January 21, 2009
At the latest LSE AIC (nice event as always), Jon Moulton, head of Alchemy Partners and one of the most entertaining guys in the business to listen to, predicted that a third of companies owned by UK mid-market private equity groups could default on their debts over the next couple of years. This is not really news as many have already said the same thing. What could be interesting is to see if his dire prediction actually is lower than the what the end number in the UK actually turns out to be.
Along these lines, Cognetas is in talks with lenders about restructuring the debts at four of its portfolio companies, this coming after it lost control of two investments last year. The FT’s reporting the four companies are SGD, a French glassmaker; Covenant Healthcare, a UK plastic surgery group; Novus, a UK pub operator; and CPI, a French printer.
September 28, 2008
Jon Moulton, of Alchemy Partners fame, believes that between 50 and 200 Private Equity-backed companies in the UK are in danger of not being able to meet their banking covenants by this Christmas.
Obviously this prediction is targeted at those firms that were acquired using extreme leverage ratios during the two year plus credit boom preceding the crunch that began in August of 2007. A downturn will make it tough to cover interest payments using operating profit when you’re geared at 90%. It doesn’t take much clarevoyance to see that wave coming.
A study of the 124 largest buyouts from the 1980’s by Steven Kaplan and Jeremy Stein showed a default rate of 2% on buyouts organized prior to 1985, and a default rate of around 27% on buyouts organized in the second half of the decade which was when the high-yield bond market was at its most prominent. It will be very interesting to see how the 2000’s break down. Perhaps a shorter period of high default rate, but with higher rates of default? Time will tell.
September 4, 2008
Jon Moulton of Alchemy Partners appeared on the BBC the other day. The interview is now on YouTube in a two-part interview. Here are both clips: Jon Moulton 1 and Jon Moulton 2. The embedding function has been disabled otherwise I would have put them on here directly. He’s always worth listening to!