Nacu, Enterprise Investors: No mega buyouts coming soon

“There are no significant targets in the market that could herald a recovery of the mega-deal segment. Considering that it takes 6-9 months to complete a transaction, it is even less likely to see any major moves for the remainder of the year”, said Cristian Nacu (photo), at the M&A Outlook 2010 conference organized by Wall-Street together with Enterprise Investors, Ernst & Young and Ensight.

As for exits, the chances are equally low, given the depressed market conditions, where players are facing a decline in turnover and profitability, Nacu added.

The investment fund partner stressed that companies might seek to engage in distressed M&A transactions, as the current economic conditions has opened new opportunities in terms of bankruptcy-related deals.

“If a company is facing a 30-40% decline in turnover and harks back to 5-years ago levels and has mounting debts, if it is readjusting to current market conditions, and undertakes a financial restructuring, and banks grasp the importance of a capital hike in order to create an adapted player, practically, they can invest in a reborn investor”, said Nacu.

The representative of the investment fund said banks were timid in pushing investors into restructuring their businesses, but sooner or later, they will have to use this lever to retrieve their money.

As for Enterprise Investors’ plans in the retail sector, Nacu said the mega deal segment should remain weak for the remainder of the year. “We have no retail targets, and the market conditions have worsened. All you can do now is make downward adjustments, since the visibility in the sector is still low”, Nacu stressed.

The Polish-based investment fund concluded last year the largest deal in the retail industry, namely the acquisition of Profi for €66 million.

“The private equity funds take the luxury of assessing a business’ profitability after five years. A weak after the conclusion of the deal, a young deputy thought seven days a week were too many for stores, that 16% was too low, and that the VAT was too low and needs to be risen. Here are the three elements that we considered as «assumptions» , assumptions that are turning into «je-ne-sais-quoi»”, said Nacu, adding that the fund “would probably still make the deal even under current market conditions”.

Referring to the medical service sector, Cristian Nacu said “the fund hasn’t found a target yet”, but will continue searching. “We have to find a worthy company, we have to have a driver, someone in the market that would tow another two or three companies”, said the partner of the investment fund.

Cristian Nacu concluded that the biggest “regret” was the inconsistency of the market that make business plans be predictable, which is why “we won’t see many deals any time soon”.