Title

Private equity firms with significant public sector interests have revealed heavy writedowns, raising fears of bank takeovers. Several big names in the finance sector have warned the City they have been forced to downgrade investments to a zero value, raising the prospect of banks stepping in. Private equity firms take over companies and improve their performance before selling them on for a return of around 25%. But in the current economic climate venture capitalists will have to consider pulling the plug on some companies. They would have to sell, call in receivers, allow a management buy-out or hand them over to their banks. The lack of credit and the wider recession has hit private equity hard. The total value of European private equity-backed transactions fell 59% in the final quarter of 2008 to £8bn. Major firms have revealed dismal results. One of the biggest, 3i, has revealed the value of its top 50 investments fall 21% in the last quarter of 2008. It owns Enterprise PLC, which provides outsourced maintenance services to the public sector. Also on its portfolio is Farrow House, a leading provider of adolescent care services in eastern England. Terra Firma, another major player, has marked down the value of its portfolio by 42%. It owns recycling and refuse giant Shanks, landfill specialist, WRG, and local government outsourcing specialist ,HBS. Nicholas Ferguson, chairman at rival company SVG Capital, gave a bleak prediction: ‘We live in challenging and uncertain times, no one knows what's going to happen. The sensible assumption is that it's going to remain difficult.' Business leaders have called on the Government to invest £1.5bn in a 3i-style investment vehicle to help struggling small firms. Richard Lambert, director-general of the CBI, said: ‘We badly need to find ways of injecting new private capital and competition into the banking market, in order to get the recovery juices flowing, and to keep the state-influenced behemoths on their toes.'

Title

BUSINESS

Private equity firms warn of downgrades

SUBSCRIBE TO CONTINUE READING