Private equity faces years in doldrums, says Moulton
Wednesday 27 February 2008
Jon Moulton, founder of Alchemy Partners, yesterday warned the private equity industry to prepare for the collapse of further deals this year, before turning his anger on the "enemies" outside and inside the buyout industry.
At private equity's showpiece gathering in Munich, Mr Moulton said: "The industry needs to prepare for bad news; there will be some large private equity failures this year. Guaranteed. Companies will go bust and get into trouble and that will be a problem."
Mr Moulton told the Super Return International conference of the challenges facing private equity companies, adding: "We have plenty of enemies."
He first turned his ire on the media. "We know the media don't like us. They call us locusts, say we don't care for our employees and attack us over us paying less tax than our cleaners," he said.
Public companies, trade unions, rival financial groups including hedge funds and the public markets all came into Mr Moulton's crosshairs, as did the regulators and politicians.
"The politicians find us a good target, and there aren't many speaking out for us," he said, adding that it was easier to blame private equity than macroeconomics.
Private equity has been more in the public eye over the past few years as the deals have become larger. Deals such as takeovers of the AA and Alliance Boots have brought those buyout groups involved some unwelcome attention from the unions and Parliament. In July last year senior managers from private equity houses operating in the UK were called to explain their business to a Treasury Select Committee.
Mr Moulton said: "We get more and more visible. We've become too visible in many ways. When private equity was dragged in front of the Treasury Select Committee, it proved very adverse PR. The attention is off at the moment but it will come back."
There was a little adverse attention yesterday, although tiny compared with previous demonstrations, as a group of about 15 protesters stood outside the conference hall. They waved signs saying "Achtung" (warning), with pictures of locusts. They had dispersed by 11am.
The signs were in reference to comments made in 2005 by Franz Münterfering, then chairman of Germany's Social Democratic Party, comparing buyout firms and hedge funds to a "swarm of locusts" that strip their targets before moving on.
Mr Moulton, who launched ventures that would later become CVC Capital Partners and Permira as well as heading buyouts at Apax Partners, criticised the trade bodies representing the industry in his address yesterday. He said some were using misleading figures to give a better impression of the industry, and named the British Venture Capital Association, which has commissioned nine studies into the industry. He added: "We shouldn't use flaky statistics to show an over-optimistic image."
The mood in Munich was downbeat. The credit crunch has slammed the brakes onmost of the dealmaking from private equity as cheap debt has dried up.
Mr Moulton said it could be years before favourable conditions return. "This year the debt for any deal has been difficult to access. The banks aren'toffering anything but threats. They are in trouble themselves, and we won't see an aggressive banking market for a numberof years."
Mario Giannini, of Hamilton Lane Advisers, said: "What a difference a year makes. Last year we were talking about how to structure and finance a deal for Microsoft. Now we're asking if we can do any deals at all."
During the first panel session of the conference, participants discussed the question: "Are we in the post golden era?" and the mood remained pretty sombre throughout.
Scott Sperling, co-president of Thomas H Partners, said: "We have seen a meltdown," adding that the slump had further to go.
Steven Puccinelli, head of European private equity at Investcorp, agreed: "The market today couldn't be worse; there are few deals for the private equity industry to look at."
He pointed out that in January 2007, private equity closed 27 deals. This year in January, there have been only two. "Transactions over the next 12 to 18 months will be hard to come by," he added.
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