Private-equity market shows signs of recovery

Private equity investors recorded a much-needed jump in disposals last year, after several years of subdued activity, although the level of "exits" was barely half 2006's peak, according to research.

Buyout firms sold or floated 57 European companies in 2010, including the initial public offering of the Betfair online gaming exchange and Amadeus travel booking firm and the sale of the Pets At Home chain.

This was almost double the 31 investments that private-equity firms disposed of in the previous year, allowing them to return cash to their investors. The firms benefited from an improving IPO market – with flotations comprising 11 of the disposals – and rise in the number of "secondary" buyouts. These deals involve one private equity firm selling to another, and the number of such transactions rebounded as banks became slightly more willing to provide the financing buyout firms rely on to help fund their takeovers.

The new figures were revealed in a report by Ernst & Young entitled Return To Warmer Waters – How Do Private-Equity Investors Create Value? Sachin Date, Ernst & Young's private-equity leader for Europe, the Middle East, India and Africa, said: "Private equity has performed well, coming out of the recession as evidenced by the return of exit activity, particularly IPOs. It has proved itself far better able to weather the storm than anyone anticipated in 2008."

Investors in private equity funds are hungry for cash after the industry has seen disposals decline in recent years as the market for mergers and acquisitions slows down. The rising volume of exits will therefore please investors and make it easier for private equity firms to raise future funds.

However, Mr Date said the outlook for private equity remained challenging in light of the global economic downturn. The 57 private equity disposals recorded in 2010 compares to 32 in 2008, 92 in 2007 and 100 in 2006.