Grant Thornton: British PE Firms Expects Lower Prices For Most Assets in 2011 – Reuters

Private equity firms in Britain expect to pay significantly lower prices for assets in 2011 according to a survey by Grant Thornton, Reuters reported. The survey captured the views of 100 private equity executives in Britain. The group sees lower prices in most sectors as a result of competition to buy businesses receded. The study indicated that health care and high technology are the only industries that will buck the trend, with valuation for health care companies expected to remain flat. The valuation for high-tech companies is expected to increase, according o the survey.

(Reuters) – Private equity firms in Britain expect to pay significantly lower prices for assets in 2011 as the fierce competition to buy businesses recedes, according to a survey by consultancy Grant Thornton.

Over the fourth quarter of 2010, private equity groups lowered their views on valuations for this year in all sectors except healthcare and high technology, the study said.

Valuations were expected to fall harder in the materials and chemicals sector, where investors were only ready to pay five times earnings before interest, tax, depreciation and amortisation (EBITDA), compared to 6.1 times EBITDA in the previous quarter.

But companies in the high technology sector and healthcare and pharmaceutical sectors will buck the trend in 2011, the survey of 100 private equity executives in Britain found.

Healthcare company valuations are seen flat at 7.2 times EBITDA, while valuations for hi-tech companies, such as software and IT providers, are expected to increase to 7.7 times EBITDA, compared to a multiple of 6.5 times EBITDA previously.

The sector saw the competitive auction for business software firm TeamSystem and a knock-out bid by KKR (KKR.N: Quote, Profile, Research, Stock Buzz) for Visma last year. [ID:LDE6720AT] [ID:LDE68P06M]

The expected fall in multiples could encourage many more private equity firms, who felt prices were too inflated as rivals chased a handful of high-quality companies, back into deals in 2011.

“A growing number of private equity groups are shifting their focus from portfolio management and exits to making new investments,” said Mo Merali, head of private equity at Grant Thornton.

Some 63 percent of respondents expect to see an increase in the volume of new investments this year.

(Reporting by Michel Rose) ($1 = 0.6257 pound)