Candover - Report and accounts 2007

Candover across Europe

European market overview

The European buyout market, like financial markets worldwide, was significantly affected by the credit slowdown during the second half of 2007 which resulted from the US sub-prime mortgage crisis. The lack of availability of debt finance considerably lowered levels of activity. Although this was another record year, the total value of buyouts remained broadly static, with €175 billion of transactions completing, against €174 billion in 2006.

The impact was felt most strongly at the largest end of the buyout market. There were just six €1.5 billion plus transactions in Europe during the second half of 2007, as compared with 15 in the second half of 2006.

The UK remains Europe’s largest single buyout market, but many of the larger deals in the first half of 2007 happened in mainland Europe. Markets such as Spain, Scandinavia and the Benelux countries have developed rapidly over the last two years.

Market analysis

Against this backdrop, it is likely that there will be some opportunities created by the economic downturn. With the public markets going through a difficult period, there are likely to be quality assets available at attractive prices. Indeed it can be said that the current market conditions play to private equity’s strengths as an asset class that makes investments in businesses that have substantial potential for value addition. Previous downturns support this hypothesis. Typically, an initial decline is succeeded by buoyant markets three to five years later when the investment cycle for transactions made at the bottom of the market reaches maturity.

Market positioning

Concerns about an impending recession and increasingly volatile global stock markets have meant tight credit market conditions are continuing in 2008. However, we are finding that we are still able to structure and execute high quality transactions in the current environment, our investment in Stork being one recent example. We are experienced in identifying the key drivers of success in businesses we back. Three fundamental drivers generate 80% of our value creation over time: sales growth, improvements in operating margins and cash generation to pay down debt. Over the last 28 years we have invested through a number of market cycles and we have a strong track record of delivering returns that outperform the market.

Our challenges over the year ahead are to ensure that the 2005 Fund is invested wisely and to manage exits from our 2001 Fund so as to continue to maximise returns for our investors.

A European focus

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