Private Equity Exits Hit by Economic Uncertainty

(Reuters) – The rate at which private equity firms exited their European investments slowed last year, a study showed on Monday, as economic uncertainty hit both new stock market listings and merger activity.

Ernst & Young (E&Y) found in 2012 there were just 61 exits from Europe-based businesses which had an enterprise value of more than 150 million euros ($200.1 million) at the time private equity made its investment, down from 85 exits in 2011.

As a result, the average period for which private equity holds a European investment is now 4.7 years, Ernst & Young said, the longest in the study’s eight-year history.

Private equity firms buy up companies with the aim of selling them later at a profit. A sale – known as an “exit” – can be either a straight sale to another private equity firm or a company or a stock market listing.

E&Y estimated at last year’s rate, it will take 13 years for private equity firms to exit their current portfolio of European businesses, taking the average ownership period to 11 years.

“Private equity will need to increase its focus on realising the backlog of companies to be exited to return capital to investors,” said Harry Nicholson, Ernst & Young’s private equity partner. “Exit rates need to increase two to four fold over the coming few years if this overhang is to be is managed successfully.”

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