UK Buyouts Skyrocket in First Quarter

The value of the UK buyout market soared to an unprecedented GBP5.25 billion (ecu 8.05 billion) in the first three months of 1998, GBP1 billion more than the first half of 1997, according to preliminary figures from the Centre for Management Buyout Research (CMBOR). Market value was boosted by transactions such as IPC, at GBP860 million, and HMV Media, at GBP812 million. Average deal size rose to GBP32.8 million, double the 1997 figure.

The current popularity of public-to-private deals, greater now than at any time since the late 1980s, has also contributed to the staggering value increase. A preponderance of low valuations below the FTSE 250 threshold combined with high prices currently being paid in the private company market have created a “value window” that the private equity industry has been quick to seize. Six of the largest deals identified during the period were acquisitions of quoted companies – Betterware at GBP127 million; Intrum Justitia at GBP126 million; Wellman at GBP73 million; Healthcall at GBP50 million; B.Elliot at GBP43.5 million; and JLI Group at GBP25 million (story, page 29).

Barclays Private Equity, one of CMBOR’s sponsors, sounded warning bells, senior director Stephen Welton said “as the number of quality deals available to investors decreases, there is a real risk that less suitable buyouts will become regard as potential transactions. Using sophisticated debt and capital market instruments can improve returns to investors and maximise cash flow flexibility, but should not disguise an increasing tendency to overpay”.

The need for caution in the UK buyout market was underlined by CMBOR’s final analysis of 1997 activity, which showed an increase to 13.3 from 12.2 in PE multiples for deals valued above GBP25 million. Meanwhile, thanks to the increase in alternative funding sources such as high-yield bonds and securitisation, conventional equity instruments accounted for only a third of deal values during the second half of 1997.

Table 3: Major UK Buyouts and Buy-Ins, Q1 1998

Deal Value (GBPm) Deal Type Vendor

IPC 860 IBO Reed Elsevier

BTR Building Products 650 IBO BTR

BPC and Watmoughs 550 IBO Private & Quoted

UPN Holdings 360 IBO United News & Media

Target Worldwide Express 174 Buyout Founders

United Texon 147 IBO MBO

Betterware 127 Public Buy-in Going Private

Intrum Justitia 126 Buyout Going Private

Wellman 73 Buyout Going Private

Fairey Hydraulics 55 Buyout Fairey

Healthcall 50.1 Buyout Going Private

Car Craft 50 Buyout Private

Source: CMBOR/Barclays Private Equity/Deloitte & Touche Corporate Finance