The first half of the year was a slow one for global private equity dealflow, according to a new report by Allen & Overy.
The law firm’s M&A index, which tracks transactions of more than $100 million, found that buyouts were down by 35 percent in volume year-on-year, from 194 in H1 2012 to 127 in H1 2013. The fall was especially stark when looking only at primary acquisitions, which were down 39 percent on last year.
The drought of activity was largely explained by the gap in expectations between vendors’ valuations and prices that purchasers are prepared to pay, Gordon Milne, a partner at Allen & Overy, told Private Equity International. “There’s been a real shortage of quality assets in the market. Fewer vendors have a real need to sell something, so if they are not getting the valuations they want then they just hold on to their assets a bit longer.”
Looking at the total value of buyouts, however, revealed a different picture: the amount spent on deals increased 6 percent on H1 2012, from $95.5 billion to $111.8 billion. Excluding secondary buyouts, value was up 22 percent.
The discrepancy was partly accounted for by a few mega buyouts, Milne said. The first half of 2013 saw the Silver Lake-sponsored take-private of PC maker Dell, worth $24.4 billion, as well as the $28 billion offer for food group Heinz take-over by Warren Buffett’s Berkshire Hathaway and Brazilian investment group 3G.
But there were deeper trends at play, according to Milne. “There is liquidity there in terms of debt finance. That is carrying through in terms of appetite – and ability – to do larger deals again.”
That didn’t seem to apply to all markets, however. Although the US was markedly down by volume, it was up 50 percent by value, from $49.6 billion in H1 2012 to $73.4 billion in the first half of this year. There was no such jump in activity in Europe, where volume was down 25 percent and value dropped 28.5 percent.
Trade exits also were down by nearly 32 percent globally, falling from 233 this year from 341 in H1 2012. But the report expressed a more positive note about the resurgence of private equity-backed IPOs. “This exit route has been largely closed over the last few years. But that seems to be opening up again, partly because in the first half of the year, the stock markets have been doing so well,” Milne said.
He thought the fate of upcoming high-profile listings, such as the IPO of Terra Firma’s property group Deutsche Annington, would provide a good test case of whether the rally would be sustained during the second half of the year.