DEALTALK-Buyout exits boost fund-raising hopes

* Thousands of PE-owned companies to exit in coming years

* Recent exits include Nycomed, Skype, Phadia

* Investors glad to have cash distributions

* Rich corporate buyers pay up for private equity companies (For more Reuters DEALTALK stories, click on [DEALTALK/])

By Megan Davies and Simon Meads

NEW YORK/LONDON, May 27 (Reuters) - Private equity firms are exiting a spurt of buyout-boom era deals and paying dividends back to long-suffering investors, turning paper profits into real cash distributions.

After a long period of not being able to sell or take investments public, the window is now open for buyout firms to clear the large backlog of companies bought years ago and distribute the proceeds to limited partners -- the pension and endowment funds which put money into their funds.

Recent banner deals are the sale of drugs maker Nycomed to Takeda (4502.T), Skype to Microsoft (MSFT.O) and diagnostics firm Phadia to Thermo Fisher (TMO.N), netting bumper returns for private equity firms by hooking cash-rich corporate buyers.

But many portfolio companies are set to languish for longer in aging portfolios and some wonder if returning money now is too little too late for investors already reshaping their portfolios.

"Investors want to see performance. You can show people mark-to-market performance and the valuation of your portfolio, but there is nothing like a cash exit," said Stuart McAlpine, partner at Cinven [CINV.UL].

Some companies are being taken public at lower than their original deal value. Freescale Semiconductor Holdings (FSL.N) went public on Thursday but the value of the chipmaker remains far below the price that buyout firms paid for it at the height of the last credit boom. [ID:nN26221527]

Exiting investments at decent returns and paying limited partners frequent dividends are seen as essential for private equity firms looking to raise new funds.

"On the basis that capital is rationed, people understandably are more likely to choose those managers that have delivered in a definite way by exiting," said Billy Gilmore, investment director at Scottish Widows Investment Partnership (SWIP).

The rise in sales and IPOs frequently precedes efforts by firms to return to investors cap in hand for the next round of funds for new deals.

"I always grin when I get a handful of distributions quite close together because it always seems to be followed by someone launching a new product," said New York-based Palisades Hudson Asset Management Chief Investment Officer Jonathan Bergman.

TIP OF THE ICEBERG

Recent data from London-based research firm Preqin shows that there have been 201 PE-backed exits so far this quarter, valued at $85 billion. That is 5 percent higher than the record level reached in the fourth quarter of 2010, Preqin said.

But it's only the tip of the iceberg and private equity firms have their work cut out to clear the backlog of portfolio companies on their books.

Firms owned an all-time high of 5,994 U.S. companies at the end of 2010, according to data from private equity data firm Pitchbook. Their data also showed the median hold time of investments by private equity firms rising to five years in 2010, up from 3.5 years in 2007.

In Europe, private equity professionals estimate some 2,000 private equity-backed companies will come on the market within the next five years.

Receptive public markets and cash-rich corporate buyers are helping restore numerous exit options for firms that were largely reliant on selling to rivals last year.

Investors are also receiving payouts from recapitalizations and dividends, said Bergman, who said he had seen the pace of distributions increase in the last 3-4 months.

"I'm just happy to see cash arriving," said Bergman.

But Triago, a Paris-based company that helps buyout firms raise money, predicts that the spate of exits would not lead to a distribution boom, as the bulk of the overhang in portfolio companies from the boom years is not going to get cleared anytime soon.

A number of the largest leveraged buyouts, such as Energy Future Holdings, the Texas power company formerly known as TXU, and media company Clear Channel Communications remain on private equity firms' books to exit.

Even with money returning to investors, many of those pension funds and endowments are questioning whether they should put quite so much money into private equity in the future.

"(Fund-raising) has improved somewhat but in many cases there has been a real reevaluation on behalf of investment committees in terms of how important private equity ought to be in a portfolio," said Josh Lerner, a Harvard Business School professor specializing in private equity. "It is definitely good news -- but is it good enough?"

(Editing by Phil Berlowitz)