Exits outstrip investments in UK

UK exit activity in the first six months of the year slightly outpaced new investments for the first time since 2006, according to CMBOR.

The value of exits completed by private equity firms in the UK in the first half this year exceeded the amount invested in new deals, according to the latest study from the Centre for Management Buyout Research.

Exits totalled £5.8 billion (€6.5 billion; $9.3 billion) in the first half of the year, against investments of £5.7 billion.

“Buyout firms in general have been more motivated to sell than acquire, and the exit market has dominated UK deal flow in the first half of this year,” Christiian Marriott, a director at Barclays Private Equity, said in a statement.

Some of the period’s most notable exits included the sale of shoe retailers Jimmy Choo by Towerbrook Capital Partners for £550 million and Kurt Geiger, by Graphite Capital Management, for £215 million.

Deal activity in the UK has lagged last year’s levels: the value of deals in the first half, at £5.7 billion, is down on the £8.6 billion completed in the same period last year, and is just 30 percent of the total value of deals completed in 2010. It is however significantly higher than the £4.7 billion of deals sealed in all of 2009.

The number of completed buyouts in the second quarter fell sharply to 59 from 109 in the first quarter, according to the report, produced in partnership with Barclays Private Equity and Ernst & Young and published by PEI. The value of deals also fell to £2.3 billion in the second quarter from £3.6 billion in the first quarter.

Secondary deals like the sale of mobile retailer Phones4u by Providence Equity Partners to BC Partners, or the sale of restaurant chain wagamama by Lion Capital to Duke Street, have accounted for more than half (51 percent in Q1 and 57 percent in Q2) of the deal activity in the UK this year, and increase on the 50 percent for Q4 last year or 46  percent for the whole year.

The mid-market – defined as deals in the £100 million to £500 million bracket – in particular has slowed, with deal volume falling from 33 buyouts in 2010 to seven in the first half this year. In value terms, mid-market deals accounted for 15 percent of the overall deals done, compared to 24 percent last year.

Marriott said: “While there are a few large buyouts in the pipeline, it is very possible that buyout activity in the second half of this year will remain subdued. While the buyout market is certainly recovering, it is clear sentiment remains cautious, particularly around asset pricing and competition from both PE houses and an emerging stream of trade buyers.”

Two sizeable deals – the acquisition of roadside assistance group the RAC by The Carlyle Group for £1 billion, and the £950 million buyout of consultancy ERM by Charterhouse Capital Partners – were not included in the data as they have yet to complete.

Sachin Date, EMEIA private equity leader at Ernst & Young, added: “Cautious market sentiment has contributed to the quietest quarter of UK buyout activity since the start of the recovery. Interestingly this caution has been less evident in Europe where Germany, France and Spain have remained strong against a declining UK share of the European buyout market – 26 percent in 2011, down from 40 percent in 2010.”

As a proportion of overall M&A activity in the UK, private equity’s contribution rose to its highest level to date: 75 percent by value and 45 percent by volume. In 2010, the figures were 65 percent and 38 percent, compared to 28 percent and 30 percent in 2009.