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May 31, 2008

Advance and Retreat

By Spear's

The world of private equity appears to be shrinking somewhat.

The world of private equity appears to be shrinking somewhat. First, MidOcean Partners decided to shut down its London operation because of the deteriorating economic outlook. Next, it was the turn of European Capital, which has £2.2 billion under management.

Under instructions from parent company American Capital, it recently withdrew at the eleventh hour from a £120-million deal to buy the School Travel Group. Having already instructed corporate finance house Baird to sell the weighing-machine manufacturer Avery Weigh-Tronix for around £100 million, the speculation is that European Capital will now wind down its portfolio of seven European businesses.

Yet all is not gloom and doom. As Scott Rudmann writes in this issue of Spear’s WMS, it is at times like these that some of the best opportunities for private equity investment arise. One group that is already thinking along such lines is Blackstone, which is raising a European property fund of up to £2.8 billion. The fact that the group is launching Blackstone Real Estate Partners Europe III so soon after closing its $10.9-billion global fund Blackstone Real Estate Partners VI suggests that it has confidence in the long-term market prospects.

The European fund will make investments of a typical size between $15 million and $150 million and will focus on hospitality, healthcare and student housing properties. The two previous Blackstone European property funds invested $1.17 billion and $1.8 billion respectively, and investments in the UK included Center Parcs and the Savoy Hotel Group.

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