Hands predicts 'many' LBO writedowns
Guy Hands, chief executive officer of Terra Firma Capital Partners Ltd, said buyout firms will have to slash the value of "many" of their investments as turmoil in the credit markets and an economic slowdown bite.
"The investment performance for the asset class of private equity as a whole will suffer considerably over the course of the next two years as the current difficult markets take their toll," Hands said in a 120-page report to investors yesterday.
"A number" of private equity-backed companies will struggle to meet their targets as a recession takes hold, forcing their owners to write down the value of their stakes, Hands said. Firms typically only value their investments at the end of the calendar year, meaning their valuations don't reflect current market prices, Hands added. That will force many firms to mark down their assets over the course of the year, he said.
Buyout firms, which gorged on an unprecedented $1.4 trillion of takeovers in 2006 and 2007, are struggling to profit from their investments. The lack of credit available after the collapse of the US subprime-mortgage market makes selling assets to other buyout firms harder, while stock market declines are making initial public offerings less lucrative.
SVG Capital Plc, Permira Advisers LLP's biggest investor, wrote down its investments in chipmaker Freescale Semiconductor Inc, broadcaster ProSiebenSat.1 and British bingo hall operator Gala Coral earlier this month.
Terra Firma may also move parts of its business out of the United Kingdom after the government introduced an 18 percent rate of capital gains tax to replace a rate as low 10 percent.
"London already faces competition from cities elsewhere in the world, which have less expensive housing and a more modern infrastructure," Hands said. "Recent developments in UK policy may well drive global firms and highly skilled individuals away from London."
Agencies
(China Daily 03/20/2008 page16)
