UK buyouts are enjoying a surge in value with the strongest quarterly performance recorded since Q2 2001, according to figures form the Centre for Management Buy-out Research (CMBOR). Total deal value reached £5.6 billion, almost £2 billion higher than the previous quarter.
The research, co-sponsored by Deloitte & Touche and Barclays Private Equity shows renewed activity at the top end of the market with six of the year’s nine £300 million plus deals taking place in the third quarter. The largest deal of the quarter and the second largest deal of the year so far is the £1.45 billion buyout of Burger King.
The figures demonstrate that private equity is the robust end of M&A activity, says Mark Pacitti, Deloitte & Touche private equity partner. “VCs are turning the downturn to their advantage – utilising their funds at a time when prices are lower and there’s less competition from trade.” But it’s not a frenzied bull market approach, he adds. The deals being done are with stable businesses which have strong asset backing and good cash flows. While there are fewer deals, they are proving to be better ones, he says.
However, 2002 is still likely to come up short of 2001 and will therefore be remembered as another poor year for the buyout market – the second down year in succession, says Tom Lamb, managing director UK of Barclays Private Equity. What the quarterly figures do provide is a good indication of current market health with the increase in value this quarter providing a strong sign that 2003 should be a better year.
Public-to-private activity, formerly the mainstay of buyout activity has fared better in the third quarter after a poor first half. Six of this year’s 12 public-to-privates took place in the third quarter including the £616 million IBO of Brake Brothers. Last year there were 33 delistings in total.
Mark Pacitti commented: “With stock market conditions unlikely to improve in the near future, companies are now deciding it’s time to take their chances and delistings have accounted for some of the biggest deals of the quarter, with some high profile deals in the pipeline such as Arcadia and Harvey Nichols.”
Local parent divestments are the most common source of buyouts, accounting for around 32 per cent of deals this year including the £427 million acquisition of Halfords from Boots and the £330 million acquisition of Kwik Fit from Ford. Receiverships are also presenting opportunities for buyouts, making up 11 per cent of deals in the first three-quarters compared with 9.8 per cent in 2001. Receiverships also account for a significant number of exits with 72 recorded so far this year.
Buyout flotations have ground to a virtual halt. Just one was recorded in the third quarter – the £6.5 million AIM listing of Lloyds Equipment Hire – after most companies failed to achieve their asking prices earlier in the year. Other exit channels are also proving problematic, with just 50 trade sales compared to 92 in 2001.