UK reaches new heights

The UK private equity market recorded its best year ever according to buyouts data provider CMBOR, with £25bn raised across approximately 650 deals.

The value figure is slightly up on 2005’s £24bn, which was invested over 680 deals, and there has been a £2bn increase in mid-market deals, accompanied by a £2bn drop in deals over £500m.

Mark Pacitti, corporate finance partner at Deloitte, said: “Overall, we have seen a better shape to the market in 2006 with the figures made up by a strong mid-market rather than a small number of deals at the top end. With the drop off in the big deal figures, we have also seen a drop in the public to private figures (from £7.2bn last year to £5.1bn this year), reflecting a strong year for the stock market overall and corporate M&A. “

It all looked so different a few months ago. In October CMBOR was reporting that just £16.9bn had been invested, which compared unfavourably to the same period in 2005 of £19.3bn. Pacitti, Corporate Finance Partner at Deloitte, commented: “Last year’s Christmas hangover lasted well into 2006, with first half deal levels looking less than healthy at around £10bn. Coming into the summer, we saw a new energy in the market as figures more than made up for the sluggish start to the year bumping up 50% to £15bn for the second half. Notably, in the highly competitive mid market range of deals between £100m and £500m, we have seen total deal value increase by 30% to £10bn compared with £7.5bn in 2005. As a result, average deal size (over £10m) has gone up by 9% this year hitting £134m.”

The hardening of public shareholders to private equity advances has had an obvious impact on deal flow at the top of the tree. Combined with a similar fall in secondary deals, this has seen a return to primary deals. Value share of PTP and secondary MBOs has fallen from 66.8% to 52.1%, whilst combined value of family and divestment deals has increased from 30.3% to 46.8%.

Tom Lamb, co-head of Barclays Private Equity, said: “The decline of UK public-to-privates in 2006 is in sharp contrast to the experience in the US where public-to-private activity in 2006 has already exceeded 2003, 2004, and 2005 combined. The largest deal in the UK in 2006 is the buy-out of United Biscuits for £1.6bn which is puny compared with the gargantuan deals being done in the US and also starting to emerge in Europe. The dearth of very large deals in the UK is surprising considering the substantial funds that have been raised this year by some of the UK based houses. Although the first take-private of a FTSE 100 company it is certainly well within their reach. It appears that the jumbo funds will either have to increase the bid premia significantly or go hostile in order to bag the elephant.”