Buy and builds peak in 2007

Figures confirm there is more to Europe’s mid-market than asset stripping and leverage, although credit market problems suggest there will be fewer bolt-on acquisitions in 2008.

In 2007 there was a record number of buy and build acquisitions with 385 bolt-ons carried out by European private equity-backed companies, according to research by mid-market firm PPM Capital.

The strategy has boomed alongside the advance of the industry since the turn of the millennium. Since 2000 the number of bolt-on deals has increased more than tenfold. The strategy has been on a continuous growth path since 2002 and in 2004, portfolio companies carried out more than 100 bolt-ons for the first time.

PPM Capital’s managing partner Neil MacDougall said: “Historically many follow-on deals were funded with debt so the current turmoil in the debt market will make the pursuit of buy and build transactions harder.” Some portfolio companies without excessive leverage may still be able to pursue the strategy but many companies will find it harder to pursue the strategy, he said.

“Clearly private equity houses may choose to fund follow-on deals with equity but for businesses with less debt capacity they may have to be more creative and work with trade buyers by merging businesses or forming joint ventures as a means to create value.”

Yesterday Hg Capital sold Clarion Events to Veronis Suhler Stevenson for £120.5 million (€239.2 million; $354.8 million) after acquiring eight businesses to expand the company. The sale led to a 34 percent internal rate of return since October 2004.