Buy and build remains strong

Private equity firms’ interest in buy and build strategies did not waver during 2008, according to the latest research from European mid-market private equity firm, Silverfleet Capital.

The report revealed that during 2008 there were 362 follow-on acquisitions, although over a hundred less than 2007’s record breaking total of 465.

A high proportion of the follow-on deals completed in 2008 were done by portfolio companies acquired by their private equity owners between three and five years ago. This would suggest that the adverse market conditions brought about by the collapse of Lehman Brothers caused portfolio company sales to be delayed; therefore, opportunities in older companies that were less laden down with debt became prospects.

As part of the research conducted by Silverfleet, bankers at UBS, Lloyds and Barclays, Ares Capital and Bank of Scotland were asked to predict the next 12 months for the buy and build strategy. The bankers revealed that for ‘high quality transactions’, debt would be available.

Managing partner of Silverfleet Capital, Neil MacDougall, said: “While the financial crisis has imposed many obstacles to financing private equity backed deals, it has driven home the critical need for private equity houses to identify and capture value in different ways. Although, unsurprisingly, activity dropped in Q4 2008 post the insolvency of Lehman, 48 follow-on acquisitions were still completed.”

Examples of the buy and build strategy include Alliance Boots’ acquisitions of Depolabo and Megapharm and Merlin Entertainment Group’s purchase of Underwater Adventures.