BANK LENDING dries up, but good times will return

Bank lending for private equity has all but dried up in Europe, and leading players do not expect a return for at least six months, possibly longer. But the market is likely to rebound strongly within a year, as prices fall and cheap bank debt becomes available, says Philipp Schwalber at healthcare specialist HG Capital.

Schwalber reckons: "There are now only 6-7 banks in Europe who are really open for business and who are willing to lend €20m to €50m each."

However, no banks are willing to act as underwriters, so any deal has to be stitched together by the private equity house. Multiples have also dropped steeply.

Others are slightly less pessimistic. Matthew Strassberg at Mid Europa points out that Polish GDP should still grow 3% next year, and says that local banks in central Europe still want to lend, and that a recession is still some way off: "However, many are now part of much bigger networks, headquartered in London or Paris. Typically, in central Europe, the local banks are given some autonomy, but it is not easy."

Job cuts at private equity houses will surely come, particularly at the big investment banks chasing mega-deals.

But Schwalber says private equity could roar back, as interest rates drop and prices fall: "We are doing our research now so that we know precisely what we want to buy when the market frees up again."

Most of the private equity houses continue to research the healthcare services market vigorously. Boris Bernstein at Allianz Capital Partners, says: "The credit crunch has not dampened the interest in healthcare, only the financing of transactions."