One of Britain’s leading venture capitalists has given warning that the market for leveraged buyouts will dry up for the next one to two years in the wake of the credit crisis.

Guy Hands, in a quarterly letter to investors in his Terra Firma buyout group, said: “The days of simply buying a good company, financing it well and enjoying a great return are over. The debt simply will not be there.”

The financier, who closed his £2.4 billion acquisition of EMI just before the markets turned, said that private equity firms would have to work much harder to get deals done.

“No longer will we put deals together in a few weeks; they will take months and possibly years,” he said. “Banks have become much more reluctant lenders and it will take time for vendors to reduce their price expectations.”

Mr Hands’s comments were echoed by Nicholas Ferguson, chairman of SVG Capital, the private equity investor, who said that the turmoil could mean the volume of buyouts falling by as much as 40 per cent.

“Based on past experience, I think we’ll see quite a material slowdown in the number of deals executed in the next six to 12 months,” he said.

Mr Ferguson, whose SVG Capital invests most of its money in the British buyout firm Permira, said that past credit crises had seen a fall in deals of about 20 per cent. However, the frenzied pace of dealmaking this year meant the decline would be much sharper this time around. “In August there were no deals at all,” he said.

Mr Ferguson, who sparked an outcry with comments that private equity dealmakers pay proportionately less tax than their cleaners, said that he believed that the current crisis in financial markets would inevitably trigger a slowdown in the wider economy. “I don’t know how deep it will be or for how long, or when it will happen, but I know we haven’t hit the bottom yet,” he told The Times.

He was speaking after SVG posted a 12.4 per cent rise in net asset value for the six months to June 30, as returns, mostly from Permira investments, rose 34 per cent.

Mr Ferguson gave warning against any excessive clampdown on the tax regime for buyout firms. “This is a very important asset class that plays an important role in the savings of literally millions of people and that is something that has to be handled very carefully indeed,” he said.

However, he declined to comment on the controversial issue of “taper relief” that allows private equity partners to pay as little as 10 per cent tax or less on the bulk of their income.

Mr Ferguson’s comments came as the British Venture Capital Association (BVCA) yesterday gave warning of the “dire consequences” of any changes to the tax regime for private equity.

The industry’s leading trade body said that any move to tighten the tax laws could hurt the UK economy as companies moved to countries such as France, Italy or Germany with more attractive tax regimes.

The Treasury has been conducting a review of private equity tax and is widely expected to announce changes to the current rules in the Pre-Budget Report this autumn.

Philip Shuttleworth, the BVCA’s tax expert, said that “carry”, which is the cut of the profits that private equity firms receive after they have paid back their investors, was not guaranteed. He said: “We really must move away from this idea that carried interest is a one-way bet. You have good periods of investment and bad periods.’’

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