New figures released by KPMG show that, when you peel away the media hype, the buyout market in the UK is actually suffering something of a lull. The froth surrounding the failed public-to-private attempts has masked the fact that the UK MBO market posted its lowest figure for 2-1/2 years in the first quarter of 2006. According to the research, there were 31 transactions completed with a total value £2.9bn.
The main issue in Europe’s most mature market is the lack of sizeable deals that are coming through the pipeline. With more than €60bn raised for European private equity last year, and with country-focused mid-market funds now able to pull in more than €1bn in a single vehicle, any drop off in deal flow must be worrying.
In Q1, there were only three deals completed of over £250m and none of these broke the £1bn barrier. They were Formula One Group (£583m), Peacock Group (£463m) and Hellermann Tyton (£303m).
Commenting on the research, Mick McDonagh, corporate finance partner at KPMG’s private equity group said: “After a record year in 2005, 2006 has got off to a stuttering start, not because of a shortage of capital, but a shortage of quality deals. 2005 was also a bumper year for fundraising and vendors know that the balance between supply and demand is in their favour, which is having an impact on both pricing and the sales process.”
All this has not gone unnoticed in the public markets, which seem to have had enough of being plundered by their well-heeled cousins in the private equity world. A series of public-to-private offers have been rebuffed, even when, as was the case with Apax’s offer for ITV, they include sweeteners for existing shareholders that want to maintain a stake. The examples of VNU in the Netherlands and TDC in Denmark also show that shareholders on the Continent are not going to roll over and have their bellies tickled.
McDonagh continues: “The message company boards are sending to their shareholders is that they should expect a particularly high premium from the private equity market. This leaves PE in somewhat of a quandary as it is against their better nature to opt for a hostile approach and deny themselves the opportunity to study the books from the inside.”
As the ITV experience showed, public companies are feeling the hot breath of the buyout houses and are reacting by borrowing some of the techniques from the PE world. For all their bluster and all their cash, buyout firms look no closer to wresting a FTSE 100 company off the market. Could this just be the beginning of the end of the slow drift from public to private?