Bankruptcies boost flagging UK deal flow

The first quarter of the year was the quietest in terms of the number of buyouts in the UK since 1986, with the majority of deals involving targets in receivership, such as snooker and pool hall operator Rileys.

Deal flow in the first quarter of the year was at its lowest level in the UK since 1986, with the lion’s share of buyout activity focusing on businesses that have fallen into receivership, according to data from the Centre of Management Buyout Research (CMBOR).

We don't see the second, third or fourth quarters being any different from the first.

Andrew Burrows

The first quarter of this year saw just 88 deals with a total value of just over £2 billion (€2.3 billion; $3.2 billion), a figure that CMBOR director Andrew Burrows feels is unlikely to be bettered by the remaining three quarters of 2009. “There is plenty of money out there, but things need to settle down more before the market will pick up,” he said at press conference yesterday. “We don’t see the second, third or fourth quarters being any different from the first.”

However, the increasing number of businesses filing for bankruptcy is providing a valuable source of deals.  

Rileys: bought out of administration

Deals such as the acquisition of pool and snooker hall operator Rileys by Greenhill Capital Partners Europe and North Atlantic Value in March contributed to the fact that during the first quarter of the year more than a third of buyouts – around £250 million-worth of deals – involved private equity-backed acquisitions of bankrupt targets. This is mirroring activity in the US private equity market, where firms are increasingly buying the debt in insolvent companies to gain control, as Onex recently did with bankrupt casino operator Tropicana.

An alternative source of deal flow, which has yet to bear fruit in a significant way, is the divestment of non-core subsidiaries by large corporates seeking to shore up their balance sheets. “Bar a few examples, corporate spin-offs have not really started in earnest in the UK,” said Jacques Callaghan, managing director of investment bank Hawkpoint, “We are a little behind the US in this respect.”

One exception to this would be the acquisition of iShares, a trading platform for exchange traded funds (ETFs), agreed between CVC Capital Partners and iShares' parent Barclays Group in April.