Private equity is not dead, but no mega deals coming soon

Posted Apr 30th 2009 4:15PM by Trey Thoelcke
Filed under: Private Equity

Leveraged buyout guru Henry Kravis, cofounder of the legendary private equity firm Kohlberg Kravis Roberts, tells Forbes that he believes private equity will come back from the hit it has taken from the financial crisis.

"It's not dead at all, but it will take different forms," he said.

Kravis compares the current economic environment to 1979, when, the U.S. economy was struggling, inflation was at 13%, unemployment at 11%, and zero financing was available. But then, of course, followed the explosion of private equity in the 1980s and 1990s.

"The current crisis happened so fast, it's as though someone suddenly shut the lights off. In my experience, the best returns come out of a downturn," he said. "We won't see mega deals for a while," but he thinks transactions up to $5 billion can still be done.

For the time being, Kravis is cautiously optimistic.

Damon Buffini, chairman of UK private equity group Permira, shares that caution, if not the optimism. He said the industry is facing more uncertainty than he could remember, likewise stating that it would be a very long time before mega buy-out deals were seen again.

"I have not experienced such a lack of clarity about the outlook in my career and there may be worse to come before we see a recovery," said Mr Buffini. But, "there will still be opportunities to invest in and transform many businesses," he said.

In its just released second annual review, Permira sees subdued investment activity in throughout 2009, with new opportunities emerging over the coming six to 24 months.

While Permira waits for those new opportunites, Kravis also says, "Equity markets are opening a touch. We're waiting and watching right now."

Tags: Damon Buffini, Henry Kravis, KKR, Kohlberg Kravis Roberts, mega deals, Permira, private equity