Permira shies away from big buy-outs

Permira is launching a €6.5bn ($9.3bn) buy-out fund that will be a third smaller than its previous one, highlighting how some of the world’s largest private equity groups have scaled back their ambitions in the wake of the financial crisis.

People at its annual investor meeting in London said the group unveiled plans to start fundraising at the end of the summer.

The buy-out fund would be Europe’s second largest since the credit crisis but it would also be significantly smaller than Permira’s previous pool of money raised in 2006, which initially had a size of €11.1bn but was later reduced to €9.6bn.

It shows how larger buy-outs have fallen out of favour in the investor community following the lacklustre performance of some of the megadeals that were signed in the run-up to the financial crisis.

Bain & Co wrote in a recent global industry report: “[Investors] have shied away from the large and mega-buy-out funds and are concentrating instead on middle-market funds”. But one investor said that despite recent problems, Permira was still “a great brand name”.

The senior fund manager said:“It would be a catastrophe for the industry in Europe if they weren’t able to raise the money they want. But €6.5bn is a fair number and there is no doubt that they will be able to raise it,”.

Permira has lost several investments in the past few years, including chemical manufacturer Borsodchem in Hungary and gambling company Gala Coral, both written down to zero.

Investors said Permira had pledged to concentrate mainly on doing deals in the €500m-€3bn range, after some of its heavily indebted larger takeovers, such as that of semiconductor group Freescale – seen as one of the worst performing private equity deals in recent years – had been severely hit by the economic crisis.

People at the investor meeting said that the group’s management had pointed to a sharp rebound of Permira’s portfolio companies in the past 18 months. This has brought its fund to above par at the end of this year’s first quarter, at a slightly later stage than many of its peers.

They said Permira had promised to focus its strategy on fast growth businesses, such as last year’s takeover of eDreams, an online travel agency that was merged with rivals Go Voyages and Opodo.

Permira’s move comes as more than 1,700 funds globally are vying to raise a combined $708bn in capital in the wake of a multiyear investment and fundraising drought, according to estimates by Preqin, the industry research group.

In Europe, Apax last month approached investors with a €9bn target, smaller than its previous €11.2bn fund, while BC Partners and EQT have already achieved a first close in their €6bn and €4.35bn fundraisings.

The fundraising wave has been hit by investors’ reluctance to commit capital to alternative assets.

One senior private equity manager said European, US and even some Chinese investors had become more selective and were writing smaller cheques.

“The problem is not the performance of private equity, which has been better than public markets. It is that a lot of investors do not have the liquidity,” he said.