Private equity firms looking for billions of dollars of new capital for deals are facing a fight for survival in the hunt for a diminishing pool of capital - and losers risk a slow death.
Fundraising has been subdued since the credit crisis. In 2011, private equity firms raised just $263 billion (164.9 billion pounds) for deals, less than half the $600 billion they pulled in every year at the peak of the buyouts boom.
Massive inflows of capital and benevolent financing markets fuelled a spate of mega buyout deals including TXU, Alliance Boots and Hilton Hotels from 2005 through to 2008.
But risk aversion, a lending freeze and economic woes have drastically reduced investors' appetite to fund new deals.
Though worst fears about a wave of defaults have not materialised, the performance of companies bought out during the boom period has been patchy and firms face a long slog to get their money back on many of the largest deals.
In Europe, probably more so than in the rest of the world, the amount of funds raised will be substantially lower. My guess is probably a third of what was raised in the boom times, Guy Hands, chairman and chief investment officer of Terra Firma, told the SuperReturn private equity conference in Berlin on Wednesday.
Others including Advent International, PAI, Triton and Guy Hands's Terra Firma
At the beginning of 2012, buyout firms were seeking $177.4 billion, a 81 percent increase on the amount they were after at the beginning of 2011, according to Preqin data.
This means the time taken to raise funds is getting longer as investors become pickier and demand more information before taking the plunge. Blackstone Group LP
Many had predicted a bloodbath in the private equity industry, with large numbers of firms forced to the wall given the financial crisis, but few have vanished yet because the long life cycles of private equity funds make firms slow to kill.
European buyout firm Candover was a notable exception in vanishing quickly. Those that have had poor performance or prove unable to adapt to a new market may struggle to raise capital, but they will not necessarily vanish overnight, industry insiders say.
They won't die a spectacular death, but most will just become moribund, said Helen Steers, head of European primary investments at global fund investor Pantheon. Is that a bad thing? No, it's just Darwinian.
British mid-market firm Duke Street pulled its planned 850 million euro fundraising having secured only a fraction of its target. Instead, it will look to raise money for individual deals as it sells investments and returns cash to investors.
However, investors say that can spell the beginning of the end.
Firms that raise money for individual deals can be less nimble when it comes to pursuing acquisitions as the capital is not instantly at their disposal. And they face the prospect of losing their top talent to rivals, losing investors' trust.
(Firms) may come back if they keep a team together. General partner continuity is probably the first thing on investor's due diligence list - if the people that did the deals are no longer around it raises warning flags, said David de Weese, partner at Paul Capital, a firm that specialises in buying investors participations in private equity firms.
A lot of attention in the industry has focused on Terra Firma, which battled hard to keep control of music group EMI, but eventually lost it to its creditor Citigroup.
Hands said he was 100 percent confident that Terra Firma would raise a new fund, but asked about the size of that pool of capital he joked: That's what I'm less confident on.
I think a lot of private equity firms will inevitably disappear over time. But it is going to take some time, it is not going to be quick.
As Darwin said it is not the survival of the strongest, its the survival of the most adaptable, Hands said.
(Reporting by Simon Meads and Greg Roumeliotis; additional reporting Arno Schuetze and Philipp Halstrick; Editing by Jodie Ginsberg)