£37bn of UK deals awaiting exits

UK-based private equity firms have unrealised investments worth an estimated £37bn, £11bn of which relates to deals completed before 2000 according to the latest research.

According to data complied by Nottingham University’s Centre for Management Buyout Research (CMBOR), UK buyout firms are sitting on some £37 billion (€53 billion; $67 billion) of unrealised investments.

The research, which focused on investments made and realised over the last 20 years, found the number of exits increased steadily in line with overall buyout market activity from 1985 to 1996 but have remained at around the same level since. Last year the number of exits rose despite a continuing M&A slump, but this was attributed to a relatively small number of mega-deals.

The figures show that the oft-stated target of realising investments within three to five years is becoming unrealistic. The average lifetime of a UK buyout exceeded five years for the first time in 2001, and in 2003 was approaching six years. This compares with an average of 3.5 years at the beginning of the 1990s.

Buyouts worth over £100 million have the best exit track record. Over 60 percent of the £100 million-plus deals in 1997 have been realised, compared with only 25 percent of those worth less than £25 million.

Difficulties identifying trade buyers coupled with the soft IPO market meant that the number of secondary buyouts equalled trade sales for the first time in 2003 and accounted for half of the 20 largest exits during the year.

“Private equity houses face a massive challenge in dealing with the investment logjam which has built up since the mid-nineties,” said Tom Lamb, managing director UK at Barclays Private Equity. “Fundraising will become increasingly difficult for those players who are unable to demonstrate a track record of successful exits.”

Added Mark Pacitti, private equity partner at Deloitte: “Encouragingly, there are signs that trade buyers are returning and we’re likely to see a rise in exits this year as VCs leap on opportunities to generate the returns on which they are measured.”