The US recovery shows signs of being stronger than expected and the country’s stock markets have turned almost over night from bear to bull. And European stock markets are poised for a similar, if less marked, transformation. Among other things this should mark the resumption of corporate M&A activity, so how long buyout investors can command the best seat at the M&A negotiation table remains to be seen. Certainly buyout firms still have plenty of money, which should ensure they get invited to bid. But how long will it be before they are beaten back by strategic acquirers and deeper pockets?
As one year draws to an end and another is about to dawn, advisers and pundits begin speculating on what will be hot in the ensuing 12 months and what will not. Typically those predictions rest on easily identifiable consolidation plays, often underpinned by legal and regulatory change. While these factors may spawn opportunities, timing, portfolio plays, exit horizons, and opportunistic investments are among the many factors that may mean for private equity investors those perceived opportunities don’t convert into investments.
Regardless of where the action occurs though, advisers – accountants, lawyers, consultants – know buyout investors have capital to deploy, which will require, sometime expensive, advice along the way. (See buyout fund raising tables.) As such the private equity divisions that have been set up as distinct entities, often within the corporate finance division of these advisory firms, during the last five years or so while the dominance of buyouts in the M&A market has increased, will remain.
One lawyer, who began advising private equity firms some 20 years ago, remembers how private equity was then regarded as the grubby end of corporate finance. Today the reverse is true and things are unlikely to revert back.
The tables of M&A activity show buyouts as a percentage of that activity both across Europe as a whole during the last six years and with UK figures extracted. Given the highly developed nature of the UK buyout market as well as the significant funds raised for investment in the UK it is not surprising to see that buyouts account for a higher percentage of M&A activity in the UK than across Europe as a whole. The predominance of UK targets making up the largest buyouts, by deal value, since 1998 (see separate deal tables) also skew these figures. The percentage of buyouts making up M&A activity is worked out on total deal values rather than deal numbers because of the high number of deals that do not record a disclosed deal value.