LONDON (Reuters) – Private equity firm BC Partner wrote up its current fund by almost a quarter in the first half, returning it to par value, a person familiar with the matter said on Monday.
The markup is one of the first signs that European buyout houses, who took steep writedowns last year, are enjoying something of a recovery in the value of their investments, helped by improving stock markets and in some cases better cash flows from portfolio companies.
Data seen by Reuters showed BC wrote the fund up by 22.4 percent from the end of December to the end of June. That compares to a 5.3 percent gain for the FTSE Eurofirst 300 .FTEU3, suggesting BC’s investments increased their profits over the period and focused on sectors that outperformed the overall market.
BC Partners declined to comment.
The source said BC had told its investors in a letter that it had written up the fund’s value by 1.3 percent for the 12 months to end-June, bringing it back to cost.
The fund’s investments include office equipment firm Office Depot (ODP.N), chemicals distribution company Brenntag [BREHO.UL] and satellite service provider Intelsat [INTSAT.UL].
London estate agent Foxtons is the fund’s only investment valued at zero, the same level at which it was valued last year.
The smallest investment in BC Partners’s eighth fund, Foxtons is one of its highest-profile purchases, done at the peak of the property bubble in mid-2007 just before the credit crunch dramatically reduced the ability of private equity firms to access debt markets to fund new deals.
BC Partners closed its current fund, its eighth, in 2005 with 5.9 billion euros ($8.42 billion) of commitments from some 120 limited partners (LPs) — the private equity term for investors. Some 61 percent of the fund has now been committed to investments.
Buyout firms typically revalue their assets twice a year in Europe and quarterly in the United States. One method is based on how comparable publicly traded firms are performing. Another is based on predicting their asset’s future cash flow, known as discounted cash flow (DCF).
European firms are also required to apply an “illiquidity discount” of up to 20 percent, to allow for the fact that they might have to take a hit on the valuation of an asset if they were to force it through a quick sale.
While the rebound in equity markets from March lows has spurred hopes that valuations may pick up again, investors and analysts remain cautious and believe portfolios could fall in the range of 5 to 15 percent in 2009. [ID:nL9420142]
Private equity firms took the knife to company valuations in 2008 as falling stock markets and poor earnings outlooks forced them to pare back the value of their investments.
European buyout house Permira wrote down the value of its portfolio by 36 percent in 2008, while Candover sliced the value of its portfolio by 50 percent and said six investments were worthless. ($1=.7011 Euro)
By Simon Meads and Quentin Webb
(Editing by Joel Dimmock and Karen Foster)