Publicly traded, U.K.-based Electra Private Equity announced today that it will use its £400m-plus war chest to go on a shopping spree amid an anticipated capital crunch owing to eurozone concerns.
Electra Private Equity sees a slowing of its disposals over the next few months as tough debt markets weigh on buyers’ capacity to do deals, the group said on Tuesday.
Following a run of sales of investments, Electra does not expect a similar level of divestments over coming months, said deputy managing partner David Symondson in a telephone interview.
“We don’t have any other sizeable sales under consideration, certainly over the next few months,” Symondson said.
Since end-September, Electra has agreed terms for selling its investments in heating products group BDR Thermea and credit card group SAV Credit. The firm also has an investment in safety equipment maker Capital Safety, which KKR has agreed to buy from Candover spin-out Arle.
Earlier on Tuesday, Electra beat analyst expectations with an 8.5 percent increase in asset valuations to 2,225 pence for the year to end September.
The group was the top FTSE 250 gainer with its shares up 3.6 percent at 1345 GMT.
While debt markets are hampering private equity groups’ ability to do deals and meet seller price expectations, some big buyout firms with large pools of capital to spend are lowering their returns targets for companies in defensive sectors with good cash flows, Symondson said.
“They are keen on … relatively low risk investments and they have kept a low return against that low risk profile,” Symondson said.
Private equity groups typically target annualised returns of more than 20 percent. But there are indications those targets have dipped into the teens, said chief investment partner Alex Fortescue.
However, Electra itself has not lowered its returns expectations and is confident of being able to find new investments, including both equity deals and debt, he added.
“Many mid-market competitors will need to fundraise in the next 12 to 18 months, and the early signs are that some are finding it very tough to raise money, so we think the competition for assets will moderate,” Fortescue said.
By Simon Meads