While the credit crunch has put a damper on headline-grabbing large buyouts, private equity firms have found other ways to discover value in the current market.

In this special report, produced in cooperation with the Wharton Private Equity Club, Knowledge@Wharton looks at how funds are adapting to changes in the credit environment, what opportunities exist in the developed markets of Europe and Japan, and the ways that proposed changes in taxation may affect the industry. Also included is a roundtable discussion on setting up a first-time fund in the current market, as well as an interview with David Rubenstein, co-founder and managing director of The Carlyle Group.

Wharton Private Equity Review: Harnessing the Winds of Change

Contents:

Following the Era of Large Buyouts, Private Equity Funds Find New Ways to Compete Page 2

Now that credit has dried up, the future of large private equity buyouts has become uncertain. Today, buyout firms are looking to compete in middle-market and foreign deals and, in many cases, are teaming up with strategic buyers and corporations in new types of transactions. According to PE firm partners and other industry experts, the economic downturn has also paved the way for a resurgence in distressed investing, as lenders and investors alike begin to adjust to new pricing realities.

Private Equity Abroad: Despite the Credit Crunch, Opportunities in Developed Markets Are Waiting Page 6

With the collapse of credit markets, private equity funds are increasingly willing to tread into unknown territory to find new deals abroad. While international buyers continue to increase their presence in the U.S., opportunities for investment in Europe and Asia are equally abundant, according to private equity experts. Although individual markets have their inherent challenges, adopting a global strategy may be one approach to weathering the current economic slowdown.

Will Changes in Taxation Affect the Competitiveness of U.S. Private Equity? Page 9

At the 2008 Wharton Private Equity Conference, the topic of taxes sparked a lively debate. According to a panel of private equity and legal experts, U.S. congressional proposals to raise taxes on the PE industry could hurt it significantly, and perhaps even force it to move offshore. Given the forthcoming U.S. elections, the debate on carried interest may be moot for the time being, but the panelists agreed that it’s a hot-button issue.

Setting up Shop: What Does It Take to Establish a Private Equity Firm in Today’s Market? Page 12

Establishing a private equity fund as a founding partner is the objective of thousands of practitioners across the industry. With the market continuing to mature, what are the hurdles, and what will it take to successfully start a private equity shop going forward? A leading private equity fundraising advisor and two leading investors with extensive experience advising and backing new private equity firms discussed these issues with members of the Wharton Private Equity Club (WPEC).

Carlyle Group’s David Rubenstein: ‘The Greatest Period for Private Equity Is Probably Ahead of Us’ Page 18

David Rubenstein is co-founder and managing director of The Carlyle Group, the Washington, D.C.-based private equity firm with more than $70 billion in assets under management. In March, members of the Wharton Private Equity Club (WPEC) interviewed Rubenstein about the ongoing credit crisis, the industry outlook, the rise of sovereign wealth funds and why private equity is “one of the greatest exports of the United States.”

Download Wharton Private Equity Review, Spring 2008

PDF format, 458KB, 24Pages. Provided by Knowledge@Wharton.

Executive Editors
Teoman Ozsan (WG’09)
Manoneet Singh (WG’09)
Sumit Sinha (WG’08)

Marketing Team
Karina Danilyuk (WG’09)
Dimple Khurana (WG’08)

Advisory Board
Michael Kopelman (WG’05)
Principal, Edison Venture
Dean Miller (WG’99)
Managing Director, Novitas Capital
Vinay Nair
Senior Fellow, Wharton Financial
Institutions Center
Stephen Sammut (WG’84)
Senior Fellow, Wharton Health Care
Systems and Lecturer, Wharton
Entrepreneurial Programs and Venture
Partner, Burrill & Company
Jason Wright (WG’00)
Partner, Apax Partners

Following the Era of Large Buyouts, Private Equity Funds Find New Ways to Compete

Nothing symbolized the most recent private equity boom better than huge buyouts, deals so big that private equity sponsors teamed up to pull off the transactions in so-called consortium — or “club” — deals that spurred talk of $100 billion transactions.

Now that credit has dried up, the future of large private equity buyouts has become uncertain. Limited by the lack of available debt financing, buyout firms are looking to compete in middlemarket and foreign deals and, in many cases, are teaming up with strategic buyers and corporations in new types of transactions. Not surprisingly, the economic downturn has also paved the way for a resurgence in distressed investing, as lenders and investors alike begin to adjust to new pricing realities.

According to Jack Daly, a managing director at Goldman Sachs focusing on large-cap leveraged buyouts in the U.S. industrial sector, 2007 was a “tale of two markets.” In the first half of the year, private equity sponsors enjoyed easy access to debt which led to previously unthinkable discussions about deals valued at up to $100 billion. By the end of the year, credit markets had contracted and the industry faced a $350 billion overhang. Lenders were unable to provide large financings and included extensive covenants on the loans they did write. “The next $10 billion deal feels years away,” Daly said. ...

Comments (0)

Show/Hide comments

Name

Email

Website

Title

Comment

smaller | bigger

Add Comment