Responding to the publication of Beyond the bears: A study of 2009 European exits by Ernst & Young, the BVCA welcomes the report as yet further evidence of the benefits of private equity investment to both businesses and investors.
The report found:
· Private equity out-performance accounts for around 40% of the return generated from exit, larger than the effect of both leverage (30%) and stock-market performance (30%). This is yet another demonstration of the superior management skills of private equity managers compared to public market benchmarks.
· The best performing deals between 2005 and 2009 were the ones that stuck to the fundamentals of the private equity model, namely buying the right companies at the right time, supporting the best management teams from the start and delivering key and sustained operational improvements.
· There was almost no correlation between levels of leverage and company performance - both top and bottom quartile PE-backed companies had similar average levels of leverage at around 70%.
· The total population in the report is 760 companies, from which 30 exits were made in 2009 - around 2.5%. Whilst this is low historically, the report notes that this 'demonstrates the decision made by most private equity owners to hold onto their portfolio companies and avoid selling in adverse market conditions.' This highlights a key strength of private equity - its long-term outlook and resilience to short-term pressures.
Simon Walker, Chief Executive of the BVCA, said: "What this report shows is just how beneficial private equity it is to both businesses and investors. It was those fund managers that upheld the fundamentals of the asset class between 2005 and 2009 that delivered the best performance, leaving those companies in a significantly better state than when they were acquired, and it was because of their superior management skills that such a significant portion of their returns was down to outperformance of the public markets, a very impressive 40%."
