Mid-market private equity touts edge over big rivals

By Simon Meads

LONDON (Reuters) - Mid-market private equity firms are playing down the impact of increasing competition for fund raising, and touting their greater scope for acquisitions than larger rivals reliant on higher levels of debt.

While there are signs the big private equity firms, such as KKR, Permira, Blackstone and Texas Pacific Group, are beginning to eye acquisitions, including the assets of troubled Icelandic retail investor Baugur and Spanish Media group Prisa, private equity spending has almost entirely dried up as banks have stopped lending for highly-leveraged deals.

"I wouldn't say it's an easy fund raising environment, but the mid-market players should find it slightly easier than the larger buyout funds," said Neil Sneddon, a director in the private equity funds team at British asset manager

F&C.

"The larger buyout funds will obviously need considerable amounts of debt into their structure which is going to be more difficult to come by."

The number of funds raising capital continues to increase, however, with recent research from analyst Preqin showing there are now some 1,600 funds actively raising money, and seeking to attract about $920 billion overall.

Preqin spokesman Tim Friedman said the impact of the competition is that funds are now taking longer to raise, with the average time taken increasing to about 15 months from about nine months a couple of years ago.

Andrew Roberts, private equity partner at law firm Travers Smith, also said it is taking longer for mid-market firms to raise funds -- and some may have to close without reaching their stated targets.

However, he added: "A lot of the investors are more committed to mid-market, smaller deals than they are to putting money into some of the larger funds because they think the larger funds will struggle to spend it."

STILL TOUGH

Despite less reliance on large debt packages to fund buyouts, financing for mid-market deals involving companies valued in the 50 million pounds ($87.89 million) to 500 million pounds range has still been hard to come by.

"Even in smaller deals the banks are increasingly unwilling to underwrite positions," Sneddon said. "Banks are forming clubs of three or four to do even relatively small deals."

Roberts said the number of mid-market private equity buyout deals his law firm is handling has "fallen off a cliff." He added the firm would normally expect to see 15 to 20 deals in the UK in the run up to Christmas but now expects to do just two or three.

"The earliest I think mid-market deals will start happening again is Q1 next year, but that's probably quite optimistic, it's likely to be Q2 or Q3," said Roberts.

At the lower end of spectrum, where deals are for companies valued at up to 50 million pounds, debt remains available. Buyouts are continuing and sellers' price expectations have become more aligned with that of buyers.