Secondary boom busts

Private equity exit values dropped to £23.8bn in 2007 despite increasing by volume as the credit crunch hit secondary buyouts hard in the second half of the year.

The latest statistics by data house CMBOR reveal that last year’s figure fell short of the £26.9bn raised through divestments in 2006, but with a record 400 sales completed, it surpassed the previous 12 months 335 by some distance.

The average exit value was well down in 2007 compared to 2006 – from £80.2m to £59.3m.

Secondary buyouts emerged to account for over half of all exits by value, reaching a record £14.4bn from 124 deals. Mark Pacitti, corporate finance partner at Deloitte, said: “2007 saw 25 deals exit for more than £250m each. However, after 16 exits in the first half, we recorded just nine in the second half as the credit crunch started to bite. It is also notable that 60% of these larger exits were secondary deals. The credit crunch not only hampers new investing activity but also makes it harder for private equity investors to realise the value they have created.”

Trade sales shot up in terms of number – increasing from 156 to 143 – but fell to almost half the value figure of 2006.

Tom Lamb, co-head of Barclays Private Equity, said: “UK exits have been so dominated by secondary deals that the slowdown in the new deal market is clearly having an effect on activity. We will wait to see if the trader buyers who have been so active in smaller deals will make a serious return to form at the larger end of the market.”

Not much hope is being pinned on the public markets to provide an alternative exit route: the number of IPOs in 2007 was the lowest since 2003 – just 14 private equity-backed companies floated last year, compared to 21 in 2006, 24 in 2005 and 31 in 2004. Safestore was the largest IPO of the year with a market capitalisation of £449m. Bridgepoint acquired the self storage provider in 2003.

The least favourite exit route, receivership, saw its highest level of activity since 2003, with 106 companies falling foul.