The value of private equity deals slumped by 58% last year in the UK, making it the quietest year since 1995.
The banking crisis meant that the total value of buyouts announced in the three months to the end of December dropped by 82% to just £994m, according to data from the Centre for Management Buy-Out Research (CMBOR). Compared with the same period of 2007, values fell by a similar amount.
This meant that for the whole of 2008, values were down 58% to £19.1bn from the record £45.9bn achieved in 2007. However, the number of deals held up comparatively well, dropping by 18% to 549.
That suggests that many more smaller transactions were concluded. The average deal size came back from £68m to £35m. A flurry of buyouts were conducted in the first quarter, ahead of changes in the capital gains tax regime for private businesses.
Christiian Marriott, a director at Barclays Private Equity, which sponsored the research, said: “Last year started off in good shape, with the strongest quarter one on record. Subsequent quarters, however, all witnessed marked falls in buyout activity as the market squeeze has tightened.”
He highlighted the contrasting fortunes of two sectors.
The business and support services sector accounted for a third of total deal value, up from 16% in 2007. Marriott said this “reflected investors’ desire for opportunities in resilient sectors”. By contrast, the retail sector made up just 3.2% of deal value in 2008, down from 31.2% in the previous year.
Looking ahead, Marriott said there might be a recovery. “If senior lenders return to the buyout market and business sentiment begins to improve, buyout activity should increase in first half of 2009, but there is still a lot of uncertainty out there,” he said.
Somewhat surprisingly, buyouts were conducted along broadly similar terms to the previous year. Multiples of profits before interest and tax remained at 17.4.