As Europe’s debt crisis continues and banks grow increasingly selective about making loans for deals involving private equity, European private equity firms are being forced to look elsewhere for the financing they need to complete acquisitions.
This is the subject of Friday’s New York Times “DealBook” article, “Private Equity Firms in Europe Struggle to Find Funds,” which reported that at $23.2 billion for the year so far, European acquisitions by private equity firms have dropped 38 percent over the same period last year, according to Thomson Reuters.
Risky investments like debt connected to private equity deals have stricter capital requirements and this also plays a role in the selectivity of European banks when making loans. Further complicating the situation for private equity firms there, when these banks do make loans they tend to be to domestic borrowers, the Times reported.
All of which has been a boon to highly receptive high-yield debt investors looking to make a quick profit, primarily institutional investors and private equity firms.
“The high-yield market in Europe is exploding,” the paper quotes one anonymous partner at a leading European private equity firm. Further reporting that according to Dealogic, the amount of European high-yield bonds connected to investments from private equity firms has risen 49 percent to $13.5 billion since 2007.
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