Celerant/Economist survey finds no consensus on how credit crunch will change private equity

By Angela McDaniels

Tacoma, Wash., Nov. 18 - Private equity leaders are united in the belief that the credit crunch and subsequent recession will transform the industry, with 96% of survey participants agreeing that private equity firms will have to change, according to research commissioned by Celerant Consulting and carried out by the Economist Intelligence Unit.

However, Celerant said the survey of more than 220 senior executives across Europe and the United States found no consensus on what the sector will look like when the credit crunch has passed, highlighted by the fact that 16% of survey respondents acknowledged that there will be a need to change but they are not sure how.

One-fifth think that the industry will need to find a completely different financing model. The company said this is unsurprising given that the reduced levels of available credit in the marketplace means that the days of massive leveraging are a thing of the past.

Almost as many, 19% globally and 29% in the United States, expect the credit crunch to lead to consolidation within the private equity sector itself, a Celerant news release stated.

Recovery seen on the way

Celerant said the survey found that 53% of private equity leaders believe that the market will return to its pre-credit crunch levels within 18 months.

The findings showed that U.S. executives are more optimistic than their European counterparts, with 62% of U.S. respondents believing that a turnaround will occur within that time frame. On the other side of the pond, 36% of U.K. and 32% of German respondents predicted a full recovery will take longer than 18 months.

"Despite the optimistic viewpoint of a majority of the survey respondents, we feel that it will be a few years before we see pre-credit crunch levels of activity again," Paul de Janosi, Celerant managing director of private equity, said in a news release.

"We expect the roots of early recovery to begin in the second half of 2009, leading to broader activity by mid-2010. The GP's will not be static though, as there is significant amount of portfolio remediation work and this type of market down-turn typically yields strong buying opportunities."

Yet to hit bottom

Celerant said that despite the long-term optimism, many of those questioned still feel that the market has farther to fall. The majority believe both the volume and value of deals will fall over the next year (78% and 81%, respectively), and two-thirds said they intend not to invest at the moment and will instead wait for more attractive deals.

In the meantime

Despite acknowledging the need for change, only 20% of survey respondants are planning to scale back activity in the next 12 months and only 2% intend to shed jobs.

Rather, the optimistic long-term prognosis is illustrated by the fact that 26% of those questioned are prepared to take on new staff, Celerant said.

"The credit crunch means that easy refinancing is a thing of the past, yet the private equity industry is still optimistic about the future," de Janosi said. "In the short term private equity companies have already begun to shift their focus from investment to improvement. They need to concentrate on their existing portfolios to ensure that they are both maximising their operational efficiency for short-term survival, and guaranteeing long-term growth."

Celerant is a Lexington, Mass.-based firm working in the operations management sector of the consulting market.

The Economist Intelligence Unit is the business information arm of the Economist Group, the London-based publisher of the Economist.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.