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Deal flow hits low in Q4 2001

The volume of private equity deals completed in the fourth quarter 2001 reached a low not seen since 1998.

A further decline in the volume of private equity backed deals completed in the fourth quarter 2001 brought deal activity down to its lowest level since the same period in 1998.

According to research firm Initiative Europe, early stage investment showed the weakest performance, with only 43 deals recorded during the last three months of 2001.

The report states that this sector has fallen steadily, with deal activity dropping 85 per cent from its peak of 285 deals in the second quarter 2000. The value of early stage investments has also fallen: Total investment in early stage deals reached just £158.47m in the fourth quarter, compared to £3.4bn in the first quarter 2000, representing a 95 per cent drop in value.

The value of deals completed over the past three months rose by more than £4bn, but this figure was boosted by a small number of large deals, said the report.

These deals, completed towards the end of the year, accounted for more than 60 per cent of the value of the market in the fourth quarter. They included the E3bn public-to-private sale of Eircom, the E2.6bn buyout of Cognis, the E1.1bn buyout of Baden Württemberg Cable Franchise and the E940m buyout of Klöckner Pentaplast.

These deals notwithstanging, the European buyout market has become less active as the global economic climate has bred caution amongst industry players.

Initiative Europe's outlook for the coming year is more promising however. Falling corporate profits are predicted to inspire sell-offs and adversely affect the firepower of trade buyers. This should present buyout houses with a wealth of investment opportunities. The potential for a bumper year for buyout players in 2002 is further boosted by the large sums of money available for investment, added the report.

Alongside new investment, fundraising towards the end of the year also suffered a decline. Despite a strong performance in the first half of the year, Q3 saw the amount of capital raised fall 62 per cent to E5.5bn, compared with a weighty E14.5bn raised in the period before.

A further drop was recorded in Q4, with only E4.8bn of capital secured, but despite the slowdown in the latter half of the year, fundraising activity in 2001 was still comparatively strong. While the E38bn of capital raised during 2001 fell below the record E44.18bn raised in 2000, fundraising activity remained healthy, especially among the established players in the market such as CVC Capital Partners and Apax Partners, which raised the largest funds ever seen in Europe, securing E4.7bn and E4.4bn respectively.

Moreover, funds raised in 2001 significantly exceeded levels recorded in 1999 by around 40 per cent, confirming that 2000 was an unusually active year in terms of fundraising, buoyed by the insatiable appetite amongst investors for technology investment.