The UK buyout market saw its highest level of mega-deal activity since the record peaks of 2000, according to the latest report from the Centre for Management Buyout Research (CMBOR), with six such transactions being announced in June alone.
Nine mega deals (buyout deals valued at more than £100m) were completed in the second quarter of 2003, led by Montagu Private Equity’s recent £860m deal to acquire UK packaging company Linpac. This compares with only three £100m-plus transactions completed in the first three months of the year.
In total, deal value in Q2 stood at £3.8bn, up by £284m on the previous quarter. The level is slightly higher than over the previous eight quarters, when the average value has hovered around the £3.6bn mark. “Despite the weak economy and low interest rates, deal flow has gradually improved during the year,” said Tom Lamb, managing director UK of Barclays Private Equity, which co-sponsors the CMBOR alongside Deloitte and Touche. “Recent activity at the upper end, with six £100m plus deals announced in June alone, is extremely encouraging,”
Despite the pick-up in the buyout market, firms are finding it increasingly difficult to exit investments. In the first half of the year, only 92 exits have been recorded, compared to an annual total of 270 in 2002. At present private equity firms are the main buyers of corporate assets. “With trade buyers still thin on the ground private equity houses continue to underpin M&A activity, accounting for 50 per cent by value and 70 per cent by volume at the end of Q1 2003,” adds Lamb.
The value of public to private transactions has also dropped – accounting for 15.1 per cent of total buy-out activity, compared with 17.6 per cent in 2002. “Volatile stock market conditions have prevented the large public-to-private transactions which characterised the buyout market hey-day in 2000,” said Mark Pacitti, private equity partner at Deloitte & Touche. No £100m-plus de-listings were recorded in quarter two. However, the overall volume of as a percentage of total buyout activity has increased – from 3.6 per cent in 2002 to 5.7 per cent to June 2003.