* Private equity investors hope to benefit from recovery
* Opportunities seen as banks clean up balance sheets
* Sector has $1 trillion in uninvested capital
By Arno Schuetze
BERLIN, Feb 25 Private equity investors sitting
on a record amount of cash are poised to leap into southern
Europe after shunning the region for years, hoping to benefit
from an economic recovery.
U.S. funds especially say they are heading to Spain and
Italy as reforms take hold, fears of a crisis relapse fade, and
equity prices remain cheap compared to the rest of Europe.
"Spain is now the next private equity paradise", the
co-founder of CVC Capital Partners, Steve Koltes, told
private equity managers on Tuesday at a conference in Berlin.
"There are airplanes full of people going down there to pick
out the treasures," he said, adding that such a move is not
without risks as many problems remain. CVC, unlike many of its
peers, has done three investments there recently.
As of late December 2013, the private equity industry was
sitting on a record $1.074 trillion in dry powder or capital
committed to private equity funds but still yet to be invested,
according to research group Preqin.
While U.S.-based funds avoided southern Europe in the debt
crisis, some of them are vowing to come back in force now.
"We are looking at Spain a lot, the country is deleveraging,
the situation is improving," Apollo's founding partner Leon
Black said, adding that as banks clean up their balance sheets
many equity, real estate and credit assets are waiting to be
mopped up by him and other private equity managers.
Spanish banks are eager sellers of non-performing corporate
loans and mortgages as they prepare for a rigorous health check
by Europe's financial regulators.
Investors are in the meanwhile hoping to benefit from an
Spain's economy, which has been in and out of recession
since a property bubble burst six years ago, grew for a second
straight quarter in the final three months of 2013, as domestic
demand and exports picked up.
Similarly, Italy dragged itself back to growth in the fourth
quarter for the first time since mid-2011.
Fears that the two countries may - like Greece and Portugal
- require an international bailout have diminished and investors
have lauded some structural reforms that have been launched to
"Labour market reforms in Spain have really made a
difference, they finally allow some real restructuring," the
head of a large European private equity group said.
Private equity firms buy companies, try to boost their
profitability by cutting costs, merging them with rivals or
shaking up operations, and then sell them on in the hope of
making a return.
While many investors have seen political stability as an
issue when thinking about investments in Italy, some private
equity managers say that companies with good products are more
or less immune to the political environment.
"I think Italy is a great place to invest. I am positive
that we will see a pick up in private equity investments in
Italy in 2014," said Carlyle's co-head of the Europe Buyout,
The abundance of medium-sized companies, especially in the
engineering, fashion and food industries and which are in need
of capital for international expansion as attractive targets,
"We have made some great returns for our investors there -
like recently when selling Moncler - and will definitely stay
active in Italy," he said, referring to the December listing of
the Italian luxury ski-wear maker Moncler.
But any investor buying into southern Europe must keep in
mind the ill fate of private equity house Oaktree, whose
Spanish doughnut maker Panrico filed for insolvency
or that of Carlyle which sold tour operator Globalia for a
fraction of its original investment.
Careful of doing their homework before launching into
insecure territory, not many buyout groups have struck deals of
Investment volumes of buyout groups in southern Europe have
continued to drop since the start of the debt crisis,
contrasting with a strong rebound in northern Europe, especially
over the past two years.
In 2013, Spain saw equity investments from buyout groups
decline to $867 million from $1.2 billion a year earlier, while
total investments reached only $208 million in Italy, one third
of what it was in 2012, according to Thomson Reuters data.