Crunch sends UK buyouts back to the ‘90s

'Large buyouts remain scarce,' said Christiian Marriott of Barclays Private Equity about research showing last year was the slowest for UK buyouts since 1995.

The overall value of UK private equity buyout activity during 2009 dropped by 74 percent to £4.7 billion (€5.4 billion; $7.7 billion) compared to £18.2 billion in 2008, according to data released on Tuesday by the Centre for Management Buyout Research (CMBOR). It was the slowest year for private equity investment in the UK since 1995.

One deal – the £1.2 billion buyout of technology company NDS by Permira – accounted for more than one-quarter of the deal volume.

Christiian
Marriott

A combination of factors, including uncertainty over economic conditions, a chronic lack of available acquisition finance and differing price expectations between buyers and vendors, has stymied buyout activity in the UK.

However, while the overall year showed a dramatic decline on previous periods, a revival of activity was recorded as the year ended, with both an increase in the number and average size of deals. The average deal size was £45 million in the fourth quarter compared to £17 million in the previous quarter.

“Large buyouts remain scarce,” said Christiian Marriott, a director at Barclays Private Equity, the mid-market firm that sponsors the research, in a statement, “but there has been a slight increase during the year with only four deals over the £100 million mark in the first half of the year, compared with seven completed in the second half.”

The number of UK businesses bought out of receivership nearly doubled during 2009 to 20 deals. “This demonstrates that there remains investment opportunities at relatively low entry multiples in companies with recovery potential,” said Marriott.

The research also notes that the number of private equity-backed businesses going into receivership has remained stable at around 50 per year since 2007 and during the first nine months of the year fewer than 1 percent of the companies going into receivership were private equity-backed.