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The cutting edge of venture capital

The leveraged buy-out market in Europe has doubled every year since the mid-1990s. Some market participants doubt that resources and expertise are sufficient to maintain this heady pace. Nevertheless business should continue booming as European monetary union takes effect and US firms are beginning to take an interest. Rebecca Bream reports.

The leveraged buy-out market is taking off in Europe this year. More investors are pouring more money into more bank funds and venture-capital firms. And the number of attractive buying opportunities is multiplying as European corporates, spurred on by impending European monetary union, begin to focus on core activities and sell peripheral businesses in order to improve shareholder value. The major players are brimming over with enthusiasm. "If you don't need much sleep, this is a great time to be in leveraged buy-outs. There are enough opportunities to do business 24 hours a day," says Charles Wickham, managing director of European leveraged finance at Merrill Lynch.

Complications

But there some complicating factors to the boom. Prices being paid for all types of businesses are high, buoyed up by a still-bullish stock market, so it's hard for a financial buyer to achieve the phenomenal returns investors have come to expect. Venture capitalists find the amount of equity they can put in is being squeezed, and arguably the risks taken in these highly leveraged deals are too much for the young market. Some buy-outs have struggled to find enough syndicate banks to provide senior debt, the weak link in leveraged finance.

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