Buyouts market nosedives

The opening quarter of this year for the European buyouts market crashed to just £3.4bn following the record £9.3bn of deals completed in the closing three months of 2006 according to research house CMBOR.

The figure for Q1 2007 is the lowest quarter for three years, with public-to-privates experiencing a significant drop-off. Despite a slow start to 2006, take privates eventually racked up £6bn in value from 25 deals; 2007 has so far seen just six deals, with a combined value of £513m.

Private equity exits have also started slowly with 58 completed at a value of £3.6bn. The same period last year saw 70 realisations worth £5.3bn signed off, leaving 2007 some way off the pace of the previous year which saw a total of £26.1bn of exits. The biggest sale so far this year has been Montagu Private Equity’s sale of UK waste management company Cory Environmental to Viking Consortium for £588m.

Tom Lamb, co-head of Barclays Private Equity – which co-founded CMBOR, said: “It is astonishing to see how little private equity activity there has actually been in the first quarter given the frenzy of press coverage surrounding a succession of high profile ‘take-private’ candidates such as Sainsbury’s, Alliance Boots, Pearson, Kingfisher, Whitbread, Compass, and Cadbury. However, the slow down in the first quarter is not necessarily a reflection of the year to come, 2005 and 2006 showed a similar drop, both of which turned into record years. Such a strong end to the year as we saw in 2006 is bound to distort the first quarter of the following year, it is worth noting that much of the value of the final quarter was down to a few mega deals, including United Biscuits at £1.6bn. It remains to be seen whether the private equity houses will actually pay a sufficient premium to allow some of these larger take privates to actually happen.”

Business support services is one sector which has experience an upswing in 2007, with the £519m of deals completed in Q1 more than double the £250m in the same period last year. Technology, media and telecommunication deals also doubled to £454m from £216m, and leisure, a hotly tipped sector this year as it was last year, has started off well with a value of £403m, down from the £549m of Q1 2006.

Adrian Balcombe, corporate finance partner at Deloitte – the other co-founder of CMBOR, said: “While the low number of first quarter completions will surprise many in the industry, we are expecting the fervent activity we have seen since the New Year to come to fruition and complete in the next three to six months. Less floats and the noticeable reduction in dual track processes shows that secondary and trade buyers are currently the preferred exit route. The current healthy position of trade buyers and the ‘wall’ of money created by the 2006 record fundraisings are the key drivers behind this trend. We are seeing some signs of restraint in the private market with deal multiples going down for mid-market deals. However, multiples continue to rise for large deals suggesting that the total 2007 deal value could be blown out of the water by one or two high profile ‘mega’ deals.”