When it emerged that Axa Private Equity had been put up for sale by the eponymous French insurer last week, it spurred hopes that the consolidation carousel in the private equity sector would finally start to spin.

The news, a few days before, of an approach by Charterhouse Capital Partners to buy out the portfolio of companies owned by Cognetas, a pan-European investor, gave rise to similar expectations.

Consolidation in private equity is seen as long overdue since the financial crisis brought a global buy-out bonanza to a screeching halt four years ago, sharply reducing the flow of capital into the asset class.

This year, private equity funds worldwide have raised $183.9bn, a fraction of the record $679.8bn that was raised in the whole of 2008, according to data from Preqin, the research group.

“It will take 10 years until we will come back to 2007 and 2008 fundraising levels. That has never happened before as the private equity sector has usually returned to its previous size within two or three years,” says Kevin Albert, managing director at Pantheon, a large private equity fund of funds.

Most industry experts doubt that a clean-up of the sector will happen through mergers or acquisitions – and both Cognetas and Axa Private Equity seem likely to provide more evidence for their scepticism.

Cognetas’ key investors last week were swift to reject a discounted sale to Charterhouse, as they agreed instead on a restructuring of the group, which owns Morrison Utility Services, a UK infrastructure maintenance provider.

Thomas Kubr, chief executive of Capital Dynamics, a Swiss private equity group with more than $20bn under management, says investors in the sector are generally wary of parting even with poorly performing private equity groups.

“As long as the management more or less behaves, investors are usually not willing to pull the plug. There is often a loyalty towards management and the feeling that they are the best persons to deal with the portfolio as they know it inside out,” he says.

Even when the management group of a private equity fund is being put up for sale, it hardly ever ends up combining with a rival.

When London-listed Candover, once the gold standard of European private equity, ran into trouble last year and was forced sell off its portfolio, it received plenty of interest, including a formal takeover offer from Alberta Investment Management, a Canadian pension fund.

In the end, Candover’s managers, led by John Arney, took over the company and renamed it Arle Capital Partners – creating yet another independent player in the market.

In the rare examples of actual takeovers, the acquirer often keeps its target on a long leash. Carlyle Group bought the big Dutch fund manager AlpInvest this year, but holds it largely at arm’s length.

When Vision Capital took over New Evolution Ventures’ whole portfolio this year, the move allowed the US healthcare and fitness investor to carry on investing with fresh capital.

The spin-off has been the norm in a sector brimming over with former banking and insurance business units – CVC Capital Partners once spun off from Citigroup, Terra Firma emerged from Japanese bank Nomura and Bridgepoint Capital was formerly part of UK bank NatWest.

This year, Syntegra Capital has emerged from Société Générale’s private equity activities, and Barclays Private Equity is expected to spin off from the UK bank this autumn.

The auction to sell the asset management company – but not the underlying funds – of Axa Private Equity could end up with a similar outcome. The French group recently invested in engineering group Spie and three merged online travel companies – Go Voyages, edreams and Opodo.

Dominique Senequier, who founded Axa Private 15 years ago and under whom it has grown to $28bn in assets under management, is said to favour a management buy-out with the help of a financial institution.

“To merge is difficult in this business because there will always be rows over the valuation of the portfolios,” says the European head of a large US buy-out house.”

Mr Kubr says: “A merger of private equity groups is almost impossible. Private equity is a people’s business and the cultures are so different that they almost never match.”

Instead, a significant reduction in the number of private equity groups is more likely to be triggered by underperforming managers who will not be able to raise their next fund.

“The dying rate in the industry is enormous. We estimate that by 2014 half of the groups that existed in 2008 will have vanished,” Mr Kubr says.

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