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Europe’s mid-market is an ideal place for private equity backers to invest as it will suffer less from the impact of the credit-crunch, according to the head of private equity at F&C.

Hamish Mair also said that investors will benefit from Europe’s tougher lending criteria as it will create opportunities for new investors in terms of deal pricing and the secondary market.

“While mid-market funds have to cope with the reality that the lending criteria of banks have become more stringent, groups operating in the mid-market have generally not relied on debt from large syndicates of banks and this debt is rarely, if ever, securitised,” Mair said. “The impact of the credit crunch in this part of the market is therefore going to be much milder.”

He added that due to problems with the US sub prime sector, credit committees are growing reluctant to authorise debt in the same quantities or on the same terms as before.

“This is a positive factor, as it will hold back or lower entry prices therefore improving the potential returns that may be achieved by these investments as they are realised over the coming years.”

Mair confirmed that the criteria at banks, such as F&C have become more stringent, but that this has not led to mid-market deals failing to complete.

“This is not only due to the smaller size of the required lending, but also to the modus operandi of mid-market managers who tend to have specific and long-standing lending relationships with a limited number of banks. Aside from the softening in deal pricing, we expect to see good secondary opportunities.

“Under these conditions, certain investors will arbitrarily allocate capital away from private equity,” he added. “In these circumstances, it is not unusual for part or all of an already invested private equity portfolio to be available at a discount to net asset value.”

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