Hawkpoint sees PTP increase

Public to private is expected to have a greater impact on European buyout activity in 2002, according to a new study.

According to a study published by Hawkpoint Partners, the European corporate finance advisory business, the number of public to private transactions in Europe is expected to increase over the next 12 months.

To produce the study, published in conjunction with mergermarket, the M&A research company, 250 executives including corporate managers and directors, private equity practitioners, bankers and lawyers in the UK, France and Germany were canvassed.

The findings suggest that the number of delistings is expected to grow most significantly in Germany. The study does not explain why Germany is seen as a future key market for public to private specialists. However the country’s revised takeover code, which makes it easier to force minority shareholders to sell their interest to a party that already has a controlling stake in a business, is likely to be among the perceived drivers of growth.

Those polled also predicted that the average value of PTP transactions in France, Germany and the UK woulf go up and that automotive and manufacturing would remain active sectors.

According to Hawkpoint, public to private activity fell both in terms of volume and value during the period from July 2000 to June 2001. The 30 deals completed during this period with a combined value of £4.7bn mark a sharp drop compared to the previous year when 41 deals were completed totalling more than £9.9bn. The report does point out, however, that this discrepancy is exaggerated by 1999’s record £3.5bn institutional buyout of real estate firm MEPC.

Real estate remained the dominant sector for PTPs in 2000/2001, but a number of large deals in other sectors, notably the £434m (E716m) buyout by Cinven of aerospace company McKechnie, and the £259m consumer sector buyout of Bernhard Matthews, suggest that PTP is being used across a broader range of industries.

Around 84 per cent of bankers and advisers participating in the survey said they believed that the process of a PTP was more complicated than other types of buyout. Many pointed out that these transactions were more intricate and sensitive as they were carried out amidst a greater degree of public scrutiny and accountability. Consequently three quarters of those polled said that management teams participating in a PTP were as good as, or better than, managers involved in conventional buyouts.

Whilst the technique is expected to be more broadly applied in future, obstacles remain. Asked to identify the most significant barriers to PTPs in Europe, private equity professionals cited legal obstacles, followed by the inability to achieve squeeze out of minority shareholders. Corporate managers on the other hand believe the biggest barrier to be the lack of private equity interest especially in France and Germany.

Corporates, alongside their advisers, also failed to see eye to eye with private equity managers on return on investment. Half the companies and advisors believed that returns from PTPs tend to be better than from other buyouts. Only nine per cent of private equity managers shared this view, with 25 per cent saying that PTPs typically generated lower returns.