KPMG’s quarterly report, which defines the mid-market as deals in the £25m to £75m range, is upbeat about the market reporting that there were 38 deals totaling £3.23bn in Q3, up on the previous quarter when 30 deals worth £2.01bn were completed. In the third quarter of 2002, the 39 deals completed had a total value of £2.76bn.
Overall, the KPMG report is optimistic about the prospects for UK buyout activity. “Activity has certainly picked up,” said Charles Milner, head of corporate finance within KPMG’s private equity group. “There are more opportunities out there and we’ve seen a real step up in the number of deals on which we are advising that have now entered exclusivity. The rising confidence we noted in the spring has fed through to the increase in completions during the third quarter.”
The heightened level of mid-market deal activity is also reflected in the level of public to private transactions, where, according to recent Centre for Management Buyout Research (CMBOR) data, 80 per cent of all UK deals this year have involved companies valued at less than £100m. Despite the prominence of the multi-billion pound Debenhams deal, only six deals have been completed with a value of more than £100m.
According to KPMG, Q3 saw ten public-to-private deals completed worth £1.518bn, the highest quarterly figure for over three years. “This is indicative of both the greater confidence acquirers are exhibiting in assessing the prospects of target companies and the increased readiness on the part of vendors to accept current valuations,' Milner said. 'However, these deals are still difficult to close and seem to be attracting increasing institutional scrutiny.”
Regarding exits, Milner continued: “The recovery in the equity markets is also giving private equity houses greater exit options. Next year we expect to see a number of private equity backed IPOs and the return of trade buyers using funding raised on the public markets.”
Nonetheless, the increase in mid-market activity has failed to make an impact on the volume of big buyout activity. “The mid-year optimism of a mega deal revival has proven a false start with this quarter's results,” said Mark Pacitti, private equity partner at Deloitte & Touche Corporate Finance, which sponsored a recent CMBOR report. “The number of UK buyouts over £100m remains depressed, with just 15 completed by the end of the third quarter, compared with 26 in 2002. However there is clear evidence that mid market activity remains stable and deal flows in the £25-75m range are bolstering the volume.”
“We seem to have an ongoing tale of two markets; the mid-market has been astonishingly stable over the last four years, whilst the high end continues to head south,” adds Tom Lamb, managing director UK at Barclays Private Equity.