Acquisitive CEOs see PE as threat

More than three quarters of UK chief executives expect increased competition from highly leveraged financial buyers in the next six months according to the results of a survey from PwC.

One third of respondents to a new survey carried out by global advisory services firm PricewaterhouseCoopers (PwC) believe that the leverage used by private equity firms will make it difficult for UK corporates to compete in auction processes.
The inaugural PwC UK Deal Confidence survey quizzed 100 senior UK executives about their levels of corporate confidence in the UK mergers and acquisitions (M&A) marketplace.
Three quarters of respondents were at FTSE 350 companies, with the remainder representing private companies with turnover in excess of £300 million (€433 million; $576 million).
61 percent of that group (and more than 75 percent of FTSE 100 respondents surveyed) expect increased competition from financial buyers in the next six months.
25 percent of the total sample, and more than 33 percent of the FTSE 100 respondents, perceive private equity as a “worrying threat”. One third of all respondents believe that the leverage used by private equity firms will make it increasingly difficult for them to compete in auction processes.
The survey threw up a disparity in the levels of confidence of corporate buyers and sellers. 73 percent of respondents stated they would be confident undertaking a major acquisition in the next six months, while more than half would not be confident about making a major disposal. Concerns over valuation were cited as the main reasons for holding onto assets.
Commenting on the disparity, Graeme Pike, head of corporate finance at PwC, told PEO: “Demand is greater than supply at the moment and lots of corporates are in a position where they don’t need to sell.”
Paul Rawlinson, head of transaction services at PwC, said in a statement: “We think this is a good time to be selling businesses – there is intense competition for deals with private equity houses in particular aggressive buyers, fuelled by plenty of cheap debt.”
However, Pike made the point that for corporates, private equity buyers represented only one form of exit mechanism: “Corporates still view trade sales as a key exit route and if they don’t have to sell, may hang on for a year or two.”
On the rationale for the new survey, Pike said: “Confidence is the single biggest driver of M&A activity. We wanted to get a benchmark of confidence in the M&A sector and a sense of what was likely to happen in 2005.” The firm hopes to repeat the survey on a quarterly or six monthly basis, Pike added.