Pubs are a bad bet, say a third of private equity firms

A third of private equity firms think the leisure and hospitality sectors are a bad bet, according to new research.

A survey by financial advisers BDO LLP found that one in three firms ranks the two sectors among the bottom three for attracting investment activity.

Around 40 per cent of mid-market private equity firms believe valuations in the leisure and hospitality sectors will continue to fall over the next two years.

The findings appeared to pour cold water on recent speculation that cash-rich private equity firms were looking to pile back into the pub market.

However Will Baxter, BDO's corporate finance director, said it was not all bad news for those looking for investment - or to sell their businesses.

According to Baxter "nearly one in five" private equity houses ranked hospitality among their top three sectors "for enjoying the highest growth in mergers and acquisitions' valuations".

"Private equity is preparing for huge ramp up in investment activity with over 90 per cent saying they need to increase the rate of investments and close more deals," he said.

But leisure and hospitality is the 'Marmite' sector, he added: "Buyers and investors either love it or hate it. Knowing the right investors to discuss mergers and acquisitions with is essential.

"Private equity managers say the sales of their older investments were unsustainably low in 2009, with most citing delays of between one and two years, but the forecast for the next 18 months heralds a resurgence of exit activity growing by 53 per cent next year and 76 per cent in 2012," Baxter added.

"With high demand for deals now evident and the emergence of a core of enthusiastic investors in the leisure and hospitality space, owners of growing businesses who are quicker to bring their business to market may get a better price because if they beat the rush next year they will get special attention."