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KPMG predicts vintage year for buyouts

Despite the gloomy news that quarterly UK buyout volumes for the end of last year had fallen to 1995 levels, KPMG Corporate Finance believes the market is poised for a comeback.

Charles Milner, head of private equity at KPMG Corporate Finance, said: “As a number of companies come under pressure from banks or look to restructure, 2002 could well be a vintage year for private equity buyers…Unlike many other potential buyers, the private equity firms have substantial resources available to invest.” According to Milner, this year also looks promising as vendors’ price expectations come into line with what private equity investors are willing to pay.

In the last quarter of 2001 only 22 management buyouts with a value of GBP1.4 billion were completed, this represents a 54 per cent drop in volume and a 76 per cent fall in value compared to the fourth quarter of 2000. Large buyouts were conspicuously absent in the October to December period, the largest being the GBP230 million secondary buyout of Leisure Link. And only two public-to-privates, WT Foods and Brockhampton Holdings, were closed in the fourth quarter.

According to Milner, the traditional end of year rush in deal activity was absent for reasons including the global economic slowdown and the events and repercussions of September 11. “Tougher economic conditions biting into company results, less surety in the syndication market and less transparency on future earnings all these factors cause a pause in the larger deal activity,” he said.

On a more positive note, the average deal value increased from GBP130 million in 2000 to GBP153 million in 2001. “Overall, 2001 held up well despite some predictions of an early free fall. The total value of deals dropped only eight per cent from GBP20.6 billion in 2000 to GBP18.9 billion in 2001 which, considering market uncertainty as we started the year, showed great resilience especially compared to the decline in overall M&A activity.” The volume of deals fell 22 per cent from 158 completed in 2000 to 124 last year.