European deals down 50% in value

But signs of a limited recovery at the larger end of the mid-market are reasons for optimism in a tough economic environment. The mid-market is holding firm, says Candover's Colin Buffin.

The European buyout market has slumped in value dropping 53 percent from €121 billion to less than €57 billion in the first six months compared with the same period last year. The latest figures from buyout firm Candover’s second quarter Barometer revealed a fall of nine percent in terms of volume with 748 deals against 823.

The market can draw some solace from a slight improvement in the value of European private equity backed transactions in the second quarter compared to the first. Deals were up 15 percent to €30 billion, from the €26 billion reported in the previous quarter.  Volumes increased by 9 percent to 390 deals compared to 358 in the first.

Colin Buffin

Colin Buffin, managing director of Candover, told PEO: “The mega buyout market is dead. The main part of the market, the mid-market, is doing deals. It’s never really gone away for the right kind of deal.”

He said after a five month barren period between October and February, there have been five large buyouts completed in the last four months. “There are reasons to remain optimistic going into the second half of the year,” he said.

There were 173 buyouts completed in the second quarter of 2008, up from 160 in the previous.

The UK has continued to outperform other regions in Europe, accounting for more than 36 percent of the overall total with 63 deals, up from 31 percent in the first quarter. The value figure has dropped by around 28 percent from €11.1 billion in the first to €8bn in the second quarter, underlining the continuing difficulties caused by the lack of leverage available at the top of the market.

Buffin said: “Valuations have really come off as a whole, which means there are good buying opportunities. It also means we’ll have to sit and work it through with our portfolio companies for longer.”

Across other European regions, the Nordic region saw volume drop by 40 percent from 25 deals to 15, while value more than doubled from €2.3 billion to €5.2 billion. The German market, on the other hand, despite recording a slight increase in volume terms from 28 transactions to 32, saw overall value drop by 36 percent from €4.4 billion from the first to the second quarter.

The mid-market segment, deals worth between €160 million and €1.65 billion has conversely seen declines over the quarter, with volume dropping by 18 percent to 27 and value dropping by approximately 28 percent to €10 billion.

The largest value bracket, deals in excess of €1.65 billion, has seen a significant improvement, up 57 percent from first to second quarter – with three deals worth €7.8 billion completing.  The largest of these was the €2.3 billion buyout of Expro, an oil and gas services business, led by Candover.