Andrew Burrows, Rod Ball and Mike Wright from the Centre for Management Buy-out Research (CMBOR) take a look at developments and trends in the European buyout market.
The total value of buyouts in continental Europe fell last year but was nevertheless the second highest value ever recorded. The final year total of €39.7bn was 10% lower than the record €43.9bn in 2002. Despite that fall the total deal volume in continental Europe rose in 2003, increasing from 542 to 563. Deal numbers remained fairly constant during the late 1990s at around 500 but are now showing signs of increasing to nearer 600.
Activity at the top end of the market has been gradually on the increase since 1995 and the number of €250m plus deals increased again from 34 in 2002 to a record 40 in 2003. The 40 continental European €250m plus deals recorded in 2003 provided 69% the total market value from just 7% of total deal volume. Additionally, buyouts between €100m and €250m also reached a record level last year with a total of 46 completed after 38 in 2002
The downward trend in the mid-market ranges appears to have been halted since 2001 with most of the ranges showing an increase or stabilisation in buyout activity. The number of buyouts rose in each case except in the €50m to €100m range.
Last year proved to be another good year for mega deals with nine buyouts with a value greater than €1bn and one above €3bn. The Seat Pagine Gialle buyout at €3bn was the second largest deal across the whole of Europe in 2003, beaten to first place by Spirit Amber in the UK for €3.6bn. Seat Pagine Gialle publishes the Italian Yellow Pages and was sold by Telecom Italia to a group of investors including BC Partners, CVC Capital Partners, Permira and Investitori Associati. The second largest deal in continental Europe during 2003 was the sale of six regional cable operators by Deutsche Telekom to a group of investors led by Apax for €1.7bn. There were seven further €1bn plus deals in 2003 including the divestment of the investment portfolio of Deutsche Bank (DB Capital) to NIB for €1.5bn and the divestment of FiatAvio by Fiat to the Carlyle Group for €1.5bn.
Buyouts from local parent divestments were again dominant last year. Local parent divestment was the largest single source of deals accounting for a third of the market, dropping from 36% in 2002 and from the peak of 41% in 2001.
Family/private and foreign parent are generally the second largest buyout sources and in 2003 private deals accounted for 19% of the market with foreign divestment at 17%. Secondary buyouts have increased dramatically in number from 28 to a record 60 last year, equivalent to a tenth of the total market.
Total value of public-to-private buyouts fell last year from €6.7bn to €3.3bn. Along with a slight increase in deal volume this led to a big decrease in average deal value from €519m to €207m. The biggest of the European public-to-private buyouts was the delisting of Ontex, the Belgian manufacturer of feminine hygiene products, for €1.1bn in January 2003. The second most valuable deal was the buyout of Danske Traelast, wholesaler of building materials, based in Denmark, for €539m. This was followed by Riverdeep, a Dublin-based producer of educational software for €353m.
General manufacturing and business services were the two most active sectors in continental Europe with 103 and 65 deals respectively in 2003, reversing the order of 2002. The third most active sector was electrical engineering with 32 buyouts and wholesale distribution, with 29 deals in 2003 was the next largest sector by volume.
Strong growth was seen in the computer hardware, drink, timber and leisure sectors. Most other sectors saw deal flow remain relatively stable although there were notable falls in activity in the agriculture, Internet technology, metals and leather sectors.
In terms of value, the general manufacturing sector was the largest at €6.5bn closely followed by business services with €6.2bn. The chemicals sector value almost doubled to become third in importance at €4bn. The drink, computer software and banking sectors all increased in value compared to their 2002 totals but energy, agriculture, textiles, leather and food fell significantly.
Technology sector buyouts are now a sizeable part of the continental European buyout market. Deal numbers fell to 107 in 2003 after reaching a peak of 134 in 2002. Value has fallen in successive years since 2001 and now stands at €6.4bn. These sectors now account for 19% of the total market by volume and 18% by value. In the UK by contrast, high tech buyouts accounted for 15% of deal volume but only 11% of the total market value. The largest sector by volume in the technology segment of the market was computer software, which had 26 buyouts, ten less than in 2002.
Germany was continental Europe’s market leader in terms of value reaching €10bn by the end of 2003, the second highest total recorded for this country. The German market reached a peak of €15bn in 2000 falling to €7.4bn and €7.9bn in 2001 and 2002 respectively, the 2003 figure being a healthy increase over the previous two years. The number of deals completed was 103, almost identical to 2002, with numbers increasing steadily since 51 buyouts were completed in 1999.
“Germany was continental Europe’s market leader in terms of value.”
In second place was France with deals totalling €9.0bn. This was 45% lower than the record €16.4bn achieved in 2002 but, as with Germany, it was still the second highest value ever recorded for the country. France always leads Europe in terms of deal numbers and last year was no exception with 140 deals completed which was 15% higher than the 2002 total and the third highest number ever recorded.
Italy was the third most valuable country with a record-breaking €7.7bn of buyouts from a record number of 43 deals. The huge value was mostly due to the Seat Pagine Gialle buyout for €3bn and the €1.5bn FiatAvio buyout. Four of the top 20 European buyouts were in Italy.
The Netherlands, normally the third largest market, was beaten into fourth place by Italy last year. The total deal value was €4.9bn, more than double the value in 2002 and a new record for The Netherlands. There were 71 buyouts in 2003 putting The Netherlands into third place in terms of volume. This was just less than the record 72 deals completed in 1998 but 27% higher than the number in 2002. Belgium had a good year with a total of €1.5bn from 20 buyouts. Deals numbers have remained fairly constant over recent years but the value is the third highest on record. Ontex was Belgium’s largest buyout at €1.1bn.
Buyout value in Switzerland dropped considerably from a record €2.9bn in 2002 to €0.8bn in 2003. Deal numbers were a little lower than in previous years at 29 compared to 35 in 2002 with volume generally around 50 from 1994 to 2001. Activity in Austria was lower with 12 deals completed compared to 17 in 2002. The Austrian buyout market value of €303m was however almost double the €175m in 2002 but still lower than the peak of €734m in 2000.
The Spanish buyout market experienced a large increase in deal volume reaching a new record of 51 buyouts. This is considerably higher than the previous record number of 41 set in 2002. The combined value was however substantially lower than the previous year at €897m in 2003. Portugal remains an area of little buyout activity, with just €54m recorded last year from five buyouts.
In Scandinavia last year the largest country by value was Sweden, which rose from €1.2bn in 2002 to €1.7bn. This was the fourth highest total ever recorded in the country and was due in part to the large Fastighets buyout for €554m. Deal flow in Sweden fell a little from 26 buyouts in 2002 to 21 last year. The value of buyouts in Finland almost doubled to €1bn putting it into second place in Scandinavia after Sweden. Deal numbers remained constant at 28. In Denmark deal value fell from €1.4bn in 2002 to €848m despite the large Danske Traelast buyout worth €539m. Deal numbers also fell by a third to just 12.
The UK is the most mature buyout market in Europe and this is again reflected in the country having the highest proportion of buyout value to GDP. At 1.5% this is unchanged compared to 2002. The Netherlands is one of the more established continental countries in the buyout market and the sharp rise in market value in 2003 to a record €4.9bn brought about a rise in buyouts as a proportion of GDP to 1.1%. Germany remains the largest economy but the market remains below many of its European counterparts with regard to its proportion of GDP. Last year the total of just under €10bn meant the buyout market stood at 0.5% of GDP
The French market equated to 0.6% of French GDP from 1.1% in 2002 and 0.4% in 2001. In Italy in 2001 the buyout market was below 0.1% of gross domestic product and this rose to 0.3% in 2002. The latest total brought this statistic to 0.6% of GDP by the end of 2003.
Exits: marginal improvement
Trade sales remained a problem for the market as did stock market flotations even though most world stock markets recovered during 2003 following recent falls. After falling to 39 in 2002, the number of trade sales in Europe did increase last year with 42 recorded, although this is still short of the 57 completed in 2001 and the 62 of 2000.
With trade sales only marginally better in 2003 much of the exit activity was therefore centred around the secondary buyout market, which reached a record level during last year. As in the UK, secondary buyouts have become a major source of liquidity to the private equity market with a total of 58 secondary deals completed on the continent last year. This is almost double the 30 recorded in 2002 and also well above the 35 of 2000 and the 32 undertaken in 2001.
Despite improved stock market conditions last year, new listings in Europe remain low with a fall to just two IPOs of former buyouts. This follows five completed in 2002 and six in 2001 and is the third year of decline after 16 new listings were recorded in 2000.
Last year only five of the top 20 non-float exits were trade sales with all others being secondary buyouts. The largest of these was the sale of Materis in France with a transaction value of €1.1bn. This was followed by Italian group Fiat Lubricants, which was sold in a secondary deal valued at €677m. The largest trade sale last year was that of TAC AB to Schneider Electric for €442m and this was followed by the sale of Spie Batignolles to AMEC for €269m.
The largest European flotation last year was the €694m listing of Swiss insurance group Alea in November. In a poor year for European floats the only other recorded listing of a former buyout was Trevisan with the Italian powder coating machine manufacturer also floating in November for €42m.
A bright future?
Although the European buyout market fell back from its record total last year, activity continued at a high level and buyouts of over €100m reached record numbers. Advocates of the continent’s growth potential may point to the fact that most of the countries that make up the market have a much lower proportion of buyout value in relation to GDP than that of the UK. A positive narrowing of this gap would result in healthy growth for the continental buyout market over the coming years. However, relatively sluggish Eurozone economic growth, the continued strength of the Euro, and a problematic exit environment may be short-term constraining factors.