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Private equity’s wish list

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Consumer retail and food has been named one of the most popular investment sectors for private equity, alongside business support services.

The findings, published in Grant Thornton’s private equity barometer, coincide with the news that HgCapital has called off plans to sell retail asset Americana. According to reports, the branded apparel business, which owns names such as Bench and Hooch, has ceased its active marketing process as buyers and vendors failed to agree on a price. HgCapital hired NM Rothschild earlier in the year to manage the sale process.

The report revealed that 36 per cent (of the 100 private equity executive respondents) “expect to be most active” in the retail sector during the next year.

“Private equity houses are currently seeing good investment opportunities involving businesses with proven track records and established brands. They remain committed to sectors including consumer markets, logistics and facilities management, as well as industrials and manufacturing,” commented Mo Merali, head of private equity at Grant Thornton.

The results are somewhat surprising in the current economic climate, particularly in the UK as high streets stores continue to slip into the hands of administrators battered by rising VAT, taxes, raw materials, freight costs and Far East wage increases, coupled with the weakest levels of consumer spending power in the last two decades. Private equity firms are already feeling the pain, notably with the collapse of Endless-backed TJ Hughes at the start of the summer.

The survey also found that business support services was an equally popular sector with the asset class. Support services has lost favour with investors, which was previously named the most active sector by 47 per cent when asked in the last quarter.

High technology was named the most active sector by 29 per cent of those surveyed, a drop of eight per cent on last quarter’s figure. Respondents expect valuations to be greater in high technology than in other sectors, with an Ebitda multiple of 7.9 over the next year.

“Even though fewer respondents say that they expect to focus on the so-called new economy in the coming months than was the case in Q1, I do not expect to see a drop in the number or value of technology buyouts. I am aware of a number of private equity deals in the high tech space that are due to complete in the next quarter which suggests that the appetite is still strong,” said Merali.

“High tech valuations are propped up by dedicated high tech investors who continue to see opportunities in niche sectors,” Merali continued.Financial services have lost favour with investors, having previously ranked as one of the most attractive investment sectors due to increasing forthcoming regulation. 

The sector was expected to be the most active this year by only 16 per cent of respondents, halving last quarter’s figure of 31 per cent.

“The outlook for financial services is mixed – although few respondents expect to be most active in this sector, recent regulation and the current market turmoil points to more, not less, private equity activity in financial services,” concluded Merali.

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