Buyers target distressed and listed companies

Private equity firms are becoming more opportunistic according to two new reports which suggest undervalued public companies and those in insolvency are increasingly becoming the subject of buyouts.

The number of buyouts out of insolvency is rising, according to the latest figures from the Centre for Management Buyout Research, which also showed that deal volumes across Europe have been broadly stable in the first quarter driven by strong dealflow in the UK.

Private equity firms are increasingly looking to distressed companies for acquisition targets, with the number of buyouts out of insolvency in Europe reaching half last year’s full year total (24) in the first quarter alone.

The findings are part of the latest quarterly report from the Centre for Management Buyout Research, in partnership with Ernst & Young and Equistone Partners.

These deals include OpCapita’s acquisition of UK-based electronics retailer Comet in January. The firm also acquired computer game retailer Game from insolvency, but that deal did not count in the 12 logged by CMBOR in the first quarter.

In overall terms however, the value of European deals in the first quarter –  €13 billion – represents a decrease from the €14 billion in the last three months of 2011. Deal volume remained stable at exactly 139 in both quarters, CMBOR said. There were 608 deals worth a combined €61.5 billion in the whole of 2011, the report said.

There was encouraging news for the UK though, which accounted for the lion’s share of deal activity. There were 62 deals recorded in the UK, worth a combined €6.3 billion – equivalent to 48 percent of the total for the quarter. France, by contrast, accounted for just 24 deals worth €531 million.

As well as targeting insolvent companies, private equity houses in Europe appear increasingly drawn to public companies too. Volatile stock markets due to ongoing concerns about the Eurozone’s economic health have meant many companies are currently trading at attractive valuations.

There were eight public to private deals in the first quarter, CMBOR said, compared to 13 in the whole of 2011 and 21 in 2010.

The findings were echoed by a report from accountancy group UHY Hacker Young, which said 57 percent of the 21 companies taken private from the Alternative Investment Market (AIM) exchange in the first quarter were bought by private equity firms. This marks an increase from the average of 27 percent over the last two years, the report said.

Laurence Sacker, a partner at UHY Hacker Young, said: “This huge interest in AIM from private equity companies shows just how undervalued they think the market is at present. After a relatively quiet few months, depressed share prices and relatively low company valuations have piqued the interest of opportunistic buyers.”