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| Welcome to the latest edition of Pilot's Log
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 Having entered the 4th quarter of 2009, market commentators remain uncertain when the market will improve. Sightings of ‘green shoots’ seem more wishful thinking than indicated by supporting trends. One thing is more certain though; the private equity world is forever changed, and from this downturn will emerge streamlined (and fewer) players, more conservative deal structures, and more emphasis placed on good companies in good sectors with excellent management.
As PILOTpartners is solely focused on the private equity and change management world, it is not hard to imagine that we have a unique voice when it comes to seeing where the market is going. There is deal flow, although a mere fraction of where it was. Bolt-ons and roll ups continue to occur, albeit at a slower pace. Exits are taking place, though too often through administration and/or pre-packs. Even the banks are beginning to open their purse strings, even as they work through the first of several anticipated waves of over leveraged and under capitalized companies needing relief of one form or another.
Since establishing PILOTpartners in January, we have quickly had to adapt to the realities of the sector that we serve. We had anticipated that our business would be heavily reliant upon supplying interim executives, both to good and struggling companies, supplemented by fulfilling various permanent and non executive searches. Instead, due to deal flow having (mostly) dried up and sponsors having to postpone management changes until they’ve reconfirmed lender support (and reset covenants, etc.), a much higher percentage of our business has come from permanent and NED searches, as well as a huge increase in commercial due diligence projects. Furthermore, the amount of work we are executing in Europe, Africa, and Asia almost exceeds that taking place in the UK. Much of this non-UK work is supported through the hard work, commitment and strong databases of our European affiliates.
During the 3rd quarter of 2009 PILOTpartners handled 61 assignments covering interim management, interim to permanent and non executive appointments, and commercial due diligence - 22 of which involved UK and US capital invested in Europe. We’ve also been finding other ways to support our clients, with initiatives ranging from co-hosting MBI candidate dinners, to introducing sector experts to various firms.
For the 4th quarter and heading into 2010, from our perspective we do expect to see market improvement across the board. Inquiries started picking up their pace during the 2nd quarter, followed by increased opportunity flow in the 3rd. And this is not just in the distressed market. Investors are ever more focused on the need to sharpen up the management teams of portfolio businesses, from Chairman, to Logistics Director. In the distressed market there are a number of factors which give us cause to expect even more work this side of Christmas / New Year – HMRC is becoming more aggressive / less benign; retail is expecting to have a really tough time; restructurings will have to continue to work without bank cash; there must be a limit as to how many more debt for equity deals the banks will accept.
PILOTpartners will also be shortly making a few big announcements, so please continue to watch this space.
Michael Gebauer, Private Equity Partner
T. 07834 235 458
E. m.gebauer@pilotpartners.eu
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