LONDON, Dec 12 (Reuters) - The credit crunch is pushing private equity firms into considering a partnership strategy with public companies to put their multi-billion cash pile to work in the absence of classic leveraged buyout opportunities.
“I can see ... a situation where a large corporation is looking at making a transforming acquisition [and] just can’t finance it on the debt market or the equity market,” Michel Plantevin, managing director of Bain Capital, told the Capital Creation conference in London on Thursday.
“We provide [the finance] and get a significant minority stake with the right partner and governace structure, and we get an attractive return.”
As banks have shut their doors to firms seeking loans for leveraged buy-outs, the industry is looking at different ways to deploy its capital.
Private investment in public equity — or PIPEs as they are known in the industry — tend to become more popular when takeovers are harder to execute as debt markets are constricted.
Private equity is sitting on some $450 billion of capital commited for buyouts, according to data from consultancy firm Preqin, with funds still on the road targeting a further $300 billion.
While Plantevin does not expect liquidity injections by private equity to bring about the immediate return of the 10 billion euro takeover, he believes the investment trend will evolve to allow a renaissance of deals in the 1 billion euro to 2 billion euro range.
Michael Wand, managing director of Carlyle Group, said his firm would also consider strategic investments in publicly quoted companies in return for a seat on the board.
“Your involvement on the board, if it’s in a sector where you have some understanding, can actually help the value creation,” he said.
“You can have minority stake in such a business but you need to be involved in shaping the growth strategy.”
Wand says he sees the potential for investment is greatest in small companies with market caps of about 100 million euros.
“Often we see that these businesses shouldn’t be on the market in the first place,” he said.
Editing by Sharon Lindores