The total value of deals in which financial buyers, such as private equity firms, bought listed European companies was more than seven times greater in 2007 than 1998, with volumes last year setting an all-time record. (See “Off Market” at the end of this article.) And, at least before the recent credit crunch, it seemed that no company was too impregnable a target. “Who would have thought ten years ago that someone would make a bid for Sainsbury’s and that it would be a private equity fund?” asks Tom Troubridge, PricewaterhouseCoopers’ London-based capital markets head, referring to last year’s interest in the UK supermarket from US private equity firm Kohlberg Kravis Roberts.
Private equity firms top the list of the new investors to whom today’s CFOs expect to answer, if not directly, then via other shareholders who pose pointed questions about capital structure vis-à-vis highly geared private equity-owned competitors. Alex Tamlyn, head of the EMEA capital markets group at law firm DLA Piper, describes the entrance of private equity houses and hedge funds into the markets as the introduction of “two new players in a very well-established dramatis personae, where the players don’t generally change that much over the decades, let alone the years.”
Of course, the nouveau riche private equity firms sometimes play the role of villains. But when Tamlyn and colleagues quizzed 167 corporate decision-makers last autumn — half of whom were CFOs — their attitudes to private equity and hedge funds were mostly positive. How active private equity remains during the current economic troubles remains to be seen, though all-out retreat seems unlikely — the value of European public-to-private deals ?in late April was already about 36% of the total for 2007.
If the changes wrought by private equity firms were the biggest story of the past ten years, what’s next for the capital markets? Will the deep pockets of sovereign wealth funds, many of which have come to prominence as saviours of companies stricken by the subprime turmoil, alter the finance landscape as fundamentally?
Whatever the case, the CFO’s focus on funding will stay the same. “It is critical to keep focus on the capital markets and also critical to ensure that you have very strong funding and liquidity,” says Declan McSweeney, CFO of Czech consumer lender Home Credit and former finance chief at Allied Irish Bank. (See “Where Are They Now?”) That’s nothing new, but McSweeney thinks the current market turmoil means some CFOs could do with a friendly reminder. “These are old lessons,” he adds, “but they needed to be relearned in the past 12 months.”
Budgeting and Planning:
Not so long ago, the drawn-out annual budgeting and planning process was something that every company loved to hate and would have done almost anything to get rid of. But now they’re not so sure.