For private equity, 'volatility is the oxygen of investing'

Private equity executives expect the turbulence unleashed by the UK’s poll-defying vote to leave the European Union to create opportunities to snap up companies at lower prices, although dealmaking activity could take a short-term hit as market participants take stock.


The referendum results sparked turmoil in the markets on June 24, with sterling plunging to a 30-year low against the dollar, while UK and European stocks also declined, with the FTSE 100 index down 4.4%, Germany’s DAX down 6.8% and France’s CAC40 down 8.4% by around midday.

William Jackson, managing partner of Bridgepoint, said: “Volatility is the oxygen of private equity investing. If you look at the global financial crisis private equity came through that [the] best of anybody. When you get these momentous period of change, the breakup of the consensus can provide lots of meaningful opportunities for investors.”

He added the volatility triggered by the ‘Leave’ vote would “create some really interesting buying opportunities. For dollar investors, particularly Europe will present some fantastic investment opportunities”.

Private equity firms have raised record amounts of capital over the past two years, but have struggled to deploy that firepower as valuations for companies have remained stubbornly high.

Peder Prahl, managing partner of Triton Partners, said in an emailed statement: “Brexit is likely to create new opportunities for us to both invest and hence drive value-creating change in a positive manner.”

Jeremy Hand, managing partner and co-founder of UK mid-market firm Lyceum Capital, said: “Though I’m sad and disappointed about a Brexit, there’s bound to be opportunity in the new environment. We expect uncertainty to create a buying window both for new deals and add-ons – and though profitability is a complex equation, there will certainly be a revenue kicker for portfolio companies with an export focus.”

The massive swings in the value of the pound and other currencies’ movements could also encourage funds denominated in euros or dollars to invest more in UK businesses, executives said.

Jon Moulton, founder of Better Capital and a backer of the Vote Leave campaign, said: “The currency movements may make UK companies look attractive to foreign buyers.”

Despite expectations that the turmoil could present investment opportunities for private equity firms, some executives predict a decline in activity in the months ahead.

Bridgepoint’s Jackson said: “The market will probably go very quiet [between now and summer] while it calibrates and firms take a pause to see what the impact is on valuations, currencies and banks.”

An investor relations partner at a continental Europe-based private equity firm said lower valuations could yield opportunities, but played down the prospects for activity in 2016, saying: “I think it’s an absolute grinding halt on UK deal flow at the moment and frankly would see that continuing into the rest of the year because we are already very close to the summer. It’s a very bad event for buyout volumes.”

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