Company valuations point to buyouts recovery

* Firms seen writing up assets by up to 20 percent in 2009

* Stock market gains, stabilised companies drive valuations

* Company write-offs less than expected

BERLIN, Feb 11 (Reuters) - Private equity portfolio valuations could rise by up to 20 percent in 2009, in a sign the buyouts industry is coming back to life after more than a year of turmoil, industry participants said.

Private equity firms revalue the companies they own quarterly, basing their calculations on comparable companies listed on public markets and projected earnings.

They usually send year-end valuations to investors in March but typically give them a heads-up of projected figures before then.

Buyout houses saw the value of their investments tumble when stock markets collapsed after the fall of Lehman Brothers in 2008 and revenues at their portfolio companies fell in the following economic downturn.

Despite recent volatility in the markets, stock prices some 50 percent higher than their 2009 lows and stabilised performances at portfolio companies, are prompting write-ups, many say.

“In the second quarter, the third quarter and, I suspect in the fourth quarter, those valuations increased and that’s another sign of life in the private equity industry,” Carlyle [CYL.UL] co-founder and managing director David Rubenstein told the SuperReturn private equity conference in Berlin.

Revaluations varied from firm to firm in 2008 but some, like British buyout firm Candover CDI.L, were forced to write down portfolios by as much as half and some companies to zero. On average, across the industry, valuations fell around 35 percent.

Buyout firms could write up investments by about 20 percent on average for the year, estimated Mathieu Drean, managing partner at Triago, which helps private equity firms raise money for funds and sells private equity assets for investors.

Write-ups would likely be in the region of 10-20 percent for the year, Nigel Dawn, global co-head, private funds group at UBS.

“We are out of freefall,” said Wim Borgdorff, managing partner at leading European investor Alpinvest, who expects to see write-ups of about 10 percent for 2009.

Prices for investor interests in funds that they seek to sell on the so-called “secondary market” have also firmed, further indicating a recovery in the industry.

The price of a position in a quality fund is now heading towards a 20 percent discount or better, whereas the average last year was closer to a 50 percent discount, Dawn said.


While write-downs of private equity-owned firms to zero were frequent, full-scale write-offs of companies bought at the top of the cycle were few and far between.

“Defaults came in at a much lower level than people expected,” said Alpinvest’s Borgdorff. “True write-offs are still very small, it’s not across the board failures.”

Not one of the top 20 buyout deals done in 2007 has gone bankrupt, Carlyle’s Rubenstein said, compared with predictions of as many as half going bust. “I suspect, having survived this part of the recession, they will survive and get some money back to investors, and in some cases they might be very profitable,” said Rubenstein.

Editing by Erica Billingham