European GPs finish '09 with deal flurry

Europe's private equity market looks set to finish 2009 with a “return to normalcy”, as several industry insiders put it.

In just the past few days, a rash of mid-market deals have been signed or closed by firms including Litorina Kapital, EQT, LDC, AAC Capital, Growth Equity Partners and GI Partners. Roughly three dozen European mid-market transactions have been agreed over the course of December, according to statistics from Dealogic coupled with informal tallies and anecdotal evidence gathered by PEO. AXA Private Equity, Truffle Capital, Triton, AnaCap Financial Partners, Herkules Capital, Francisco Partners and Lyceum Capital are among the firms that have contributed to the month's activity.

“It's been a wild few weeks because a whole significant section of the market started working again from early September,” said Mark Wignall, chief executive of Matrix Private Equity Partners, a lower mid-market firm that has done two deals in the past five days. “You're seeing the first wave of deal completions” in part as a result of buyers and sellers finally coming closer together on valuations post-summer, he said.

I think sellers came back after the summer holiday and realised that magic wasn't going to turn things back into 2007 again. Jeremy Hand

His comments were echoed by Jeremy Hand, managing partner of Lyceum Capital, a UK-based mid-market firm that this month completed its ninth add-on acquisition of the year and expects to sign two platform deals in the next week. “I think sellers came back after the summer holiday and realised that magic wasn't going to turn things back into 2007 again.” Deals the firm had been “working on for months, years even, kind of turned all of a sudden [around September]… there was just a much stronger sense of realism”.

Stephen Lloyd, managing partner of Ashurst’s corporate department, agreed that “prices have come down a little bit and there is a little bit more debt around for the right deals”. As private equity houses appear to be “back in spending mode”, Lloyd said he was “quite optimistic” for next year.

The uptick in activity is not just reserved to the mid-market, noted David Walker, head of the private equity transactions team at Clifford Chance. “There has been, since September, a marked pickup in activity — ‘marked’, because there wasn’t much activity before.”

For assets that are perceived as high quality, and these seem to be in short supply, competition can become even fiercer than it was in the boom times. David Walker

Now, Walker continued, “There appears to be increased confidence and a growing appetite to spend money among private equity firms. For assets that are perceived as high quality, and these seem to be in short supply, competition for those assets can become even fiercer than it was in the boom times.”

Recently completed auctions in the large-cap arena include the race for ICG's clinical trial logistics company, Marken. That was won two weeks ago by Apax when the private equity firm agreed to underwrite most of a £975 million equity cheque and said it would put a debt package in place before the deal completes in 2010. Other auctions ongoing include Bridgepoint’s Pets at Home, which is pursuing a dual track process and has reportedly received bids in the £800 million range from Apax, Bain Capital, Kohlberg Kravis Roberts and TPG.

As evidenced by the aforementioned auctions, exit momentum is building. Others that have taken place this month include Duke Street’s £240 million trade sale of facial skincare brand Simple, netting a 2.7x return, and, on the larger end of the spectrum, Candover’s and Cinven’s sale of Springer Science+Business Media to EQT and GIC for €2.3 billion.

Exits via public floats are also continuing to pick up steam, according to Mark Bergman, co-head of the securities and capital markets group at Paul, Weiss, Rifkind, Wharton & Garrison. “From what we’re seeing on the capital markets side, it’s incredibly busy. IPOs seem to be the order of the next couple of months,” he said, noting the emphasis is on getting to market as quickly as possible to beat rivals or a potential change in market conditions.