Companies with cash raised before investor appetite all but vanished after the collapse of Lehman Brothers are now set to emerge stronger from the downturn, provided they avoided severe problems in their portfolios.
There are plenty of private equity firms with significant funds available to invest and a growing impatience to invest them, said Michael Berry, head of debt advisory firm Versatus.
The sector has been severely hit by troubles at the highly-indebted companies they own and a lack of investor appetite. Candover is now looking for a buyer and 3i has asked for fresh funds from shareholders.
Firms in a good position include Advent International, Bridgepoint , CVC, Charterhouse , Cinven and Warburg Pincus , Berry said.
CVC last month won the auction to acquire Barclays iShares, in a deal worth about 3 million pounds. But it now faces stiff competition from rival private equity firms looking to trump its bid and snatch the prized asset management unit away.
These are among the houses that raised funds in the last 12 months, giving them the cash -- or dry powder in industry parlance -- before pension funds and insurance companies all but stopped making new investments.
I think the dry powder is absolutely key to be able to emerge as one of the winners -- or at least stronger at the end of the cycle than before, said Dominique Megret, chairman and CEO of French buyout house PAI Partners.
PAI closed its fifth fund last year on 5.4 billion euros ($7.24 billion) and crucially sold some 10 billion euros of company assets in 2007 -- before prices crashed and it became harder to return money to investors.
The firm is working on a number of potential transactions but was adopting a very prudent and cautious approach to potential investments, Megret said.
Missing the first is not a major issue, what is important is to be ready when the very good transactions are back, said Megret.
ON THE SIDELINES
Raising fresh funds remains hard, sidelining those without capital to spare in their present funds.
Raising a fund in 2009 ... is a big challenge, but it might be better next year, or the year after, said Megret.
Those with a portfolio full of problem companies and an exhausted fund may never raise a new fund.
People talk about 40 percent of funds not raising another fund -- that's entirely conceivable, Michael Queen, chief executive of 3i Group Plc, told a conference call for reporters last week, following the group's announcement of a 732 million pound rights issue.
Fellow listed private equity firm Candover saw investor appetite for its latest fund dry up in the final quarter of 2008, after it raised some 2 billion euros of its targeted 4 billion external investment.
The firm is currently in talks with potential buyers after the listed parent ran out of cash to meet its own 1 billion euro commitment to the fund.
Between two-thirds and three-quarters of investors are currently not putting up money because they have liquidity issues or are cautious about private equity, said Antoine Drean, chairman and CEO of placement agent Triago.
While big buyout funds are struggling to raise capital from the remaining interested potential investors, some strategies are more attuned to current market conditions.
Distressed funds, secondary funds -- which deal in second-hand private equity assets -- growth capital and niche buyouts are still attracting interest from investors who still have capital to deploy, Drean said.
Both Goldman Sachs and HarbourVest closed secondary funds last month, raising $5.5 billion and $2.9 billion respectively.
Frankly, it's never easy to get across the line in a fundraising, said HarbourVest managing director Pete Wilson, but he added the firm had raised almost $1 billion in the latter part of 2008 and early 2009.
(Editing by Jon Loades-Carter)