Adrian Moser/Bloomberg NewsMartin Halusa, chief of Apax Partners, a European private equity firm.LONDON – Martin Halusa, chief executive of the European private equity firm Apax Partners, is not optimistic about the Continent’s debt crisis. He believes Europe could face a lengthy period of low growth similar to what Japan has suffered for more than two decades.
But concerns about the Continent’s future prospects may be good for his business.
A number of potential sellers, particularly in the financial services sector, are looking to offload assets. That has forced prices down, and provided the chance to do deals despite broader questions about the European economy.
“We are in a 10-year Japanese-style situation in Europe,” Mr. Halusa, the 57-year-old son of a former Austrian ambassador to the United States, said in an interview with DealBook. “Companies that are looking to sell assets to deleverage their balance sheets are open for offers.”
Apax, which is based in London, has been looking to take advantage of the economic turmoil. Late last year, the firm agreed to buy the telecommunications company Orange Switzerland for 1.6 billion euros ($2.1 billion) from France Telecom, which has been looking to sell parts of its European operations.
Apax spent a combined 3.2 billion euros of its own cash on seven deals last year, including Kinetic Concepts, a San Antonio-based medical device company, and the Golden Jaguar restaurant chain in China. Apax is likely to spend an additional 2.5 billion euros this year.
Founded over 30 years ago, Apax started out as a venture capital firm, but shifted its focus into private equity beginning in the early 1990s. The firm has raised a combined $36.9 billion over that time period, and recorded a 19.5 percent net return on its investments for the ten years through 2010, the latest figures available.
Despite its European heritage, only 40 percent of the firm’s investments are on the Continent, according to Mr. Halusa, who became Apax’s chief executive in 2003. Another 40 percent are based in the United States, while 20 percent come from emerging markets.
That ratio is expected to change as companies from developing countries grow in size. Apax focuses on deals of 1 billion euros to 5 billion euros. Mr. Halusa says the firm’s strategy limits its options in markets like China and India because many of the countries’ companies are too small.
But with the engine for global growth continuing to shift to developing economies, Mr. Halusa expects more deals to come from these economies. Apax made its first investment in Brazil in 2010, and has opened offices in Shanghai, Mumbai and Hong Kong.
“The deal size in emerging markets may rapidly develop to the levels that we look at,” he said.
The shift away from Europe could be a wise strategy. Economists expect the Continent’s growth prospects to remain anemic, and many companies focused on the local markets have struggled because of a cutback in consumer spending.
European banks also have pared back lending, as they try to improve their overstretched balance sheets. As a result, takeovers by private equity firms in Europe have totaled a combined $16.5 billion so far this year, a 17 percent drop compared with the same period in 2011, according to the data provider Thomson Reuters
Mr. Halusa says deals can still be done, though banks are becoming more wary about which transactions they will support. Apax focuses on five sectors, including health care, financial services and technology, and has a long track record of successful acquisitions and exits that it hopes will win over potential takeover targets and skeptical financiers.
“Bankers will finance deals that they believe will close,” Mr. Halusa said. “They don’t want to be backing the wrong horse.”
Apax will be hoping its luck continues as it looks to raise a new fund of approximately 9 billion euros. So far, the firm has tapped investors for 4.3 billion euros, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.
Raising the remaining money may be more difficult. A number of other European private equity firms, including Permira and Cinven, also are starting new funds at the moment, and analysts say investors are unlikely to back all the companies hoping to open portfolios. Mr. Halusa declined to comment on Apax’s fund-raising efforts.
To win future support, a lot will depend on how the firm’s investments perform.
In October, Mattel agreed to buy HIT Entertainment, the owner of preschool brands like Barney and Thomas the Tank Engine, from an Apax-led consortium for $680 million. The firm also successfully listed Bankrate, a personal finance Web site, on the New York Stock Exchange last July.
Future exits could be tougher. Despite several initial public offerings in Europe this year, the Continent’s capital markets remain jittery. And cash-rich companies may refrain from multibillion-dollar acquisitions because of fears that the deals will drain capital reserves.
Mr. Halusa acknowledges that market confidence is low, but says Apax is prepared for the uncertainty.
“We never rely on only one exit strategy; it’s too dangerous,” he said. “I don’t see a big I.P.O. market heading our way any time soon.”