EUROPE - There was a warning today from mezzanine finance specialist Intermediate Capital Group that the European private equity buyout market, with some €58bn of uninvested funds, is overheating.
ICG noted the European leveraged market rose to €60bn in the first half of 2006 - up 62% from 2005.
It said: "This level of activity is fuelled by record fund raisings for the private equity community in Europe: in 2005 circa €70bn of new money was committed to the private equity funds and in the first half of 2006 another €40bn has been raised.
"In aggregate €58bn more has now been raised in the last 18 months than has been invested. This cash overhang will stimulate further activity in the buyout market and will prompt increases in prices being paid for businesses."
It said the debt market has become "increasingly competitive and overheated" - adding that buyout deals were "being completed at levels of leverage and with growth assumptions that leave little or no margin for error".
ICG added it was concerned large commodity debt transactions with "an imbalance of risk and reward for lenders".
"In many transactions there is now a multitude of investors at every level of the capital structure. We believe that, in the event of impairment, management of these syndicates will be extremely difficult."
ICG disclosed that it has raised €425m of new funds from new discretionary clients such as pension funds and insurance companies, which it did not name.
Overall, ICG's funds under management have risen to €4.7bn. Pre-tax profits for the six months to the end of September rose 36% to £106.9m.