First quarter UK buy-outs at £5.5bn

MBOs, MBIs, and institutional buy-outs were at their third highest quarterly level ever, according to KPMG.

In the first quarter of this year, private equity houses spent £5.5bn (E8.8bn) on larger UK buy-outs, i.e. deals with a value of more than £10m. This is the third highest quarterly level ever reached, according to research by KPMG Corporate Finance.

During the first quarter of the year, 34 buy-outs were completed. Six were valued at over £500m. This included Schroder Ventures’ £1bn Homebase buy-out from Sainsbury's. The number of transactions is lower than average but the research says that the volume is in line with the first quarters of other years. In the fourth quarter of 2000, 48 buy-outs were completed with a total value of £4.2bn.

Charles Milner, UK head of private equity at KPMG Corporate Finance, said the research indicates that the larger end of the buy-out market remains healthy. “The private equity marketplace is certainly very active and there is no reason to suppose that the volume of transactions will not pick up again. The question is by how much and how quickly.”

“Clearly the equity markets are suffering a severe downturn and there is much prevailing uncertainty. The pessimistic sentiment expressed persistently in certain quarters appears to be taking hold. However, with such uncertainty and volatility comes opportunity and a realignment of expectations of value as between buyer and seller. Traditionally private equity houses have been very adept at exploiting such circumstances. We expect to see a continuation of the levels of activity currently being experienced in the buy-out marketplace.”

The study of management buy-outs, management buy-ins, and institutional buy-outs shows that the £5.5bn raised in the first three months of the year exceeded the previous quarter by over 30 per cent. It is the third highest quarterly total achieved to date. The average value per deal was £162m which was only exceeded in the second quarter of 2000, and is up by 25 per cent on the average for the whole of 2000 of £130m. Eight out of the top ten deals are valued at more than £250 million.

A significant proportion of larger buy-outs took place in the public-to-private market. The quarter showed a continuation of the trend of PTP transactions with completions in excess of £2bn, the second highest recorded quarterly total of such deals. Four out of the nine PTP deals struck were in the property sector and at £1.6bn amounted to 80 per cent of the total value for PTPs. A further six PTPs with a value of £1.2bn were announced in the quarter but still await completion.