Mid-market dominates UK dealflow

The first three months of 2003 saw the highest number of UK mid-market buyouts deals since 1999, while larger deals were at their lowest level for seven years.

Mid-market private equity transactions recovered strongly in the first three months of the year, recording their highest quarterly value since 1999.


The latest figures from the Centre for Management Buy-Out Research (CMBOR) at the University of Nottingham reveal that a total of £1.4bn was invested in deals valued between £10m and £100m, nearly doubling the previous quarter total of £800m.


A steady flow of deals in the first quarter led to a total of 37 deals being completed during the period, compared with 29 in the last quarter. This makes it the best quarter for deal activity since Q4 2000, the last quarter before the boom market ended.


Close Brothers, Barclays Private Equity, HgCapital, Phoenix Equity Partners, Rutland and Sovereign Capital all completed deals in the first quarter. UK mid-market firm Graphite Capital completed two deals in the quarter, backing the £70m buyout of fashion chain Jane Norman in January and a £25m MBO at Napier Industries in February.


“The mid-market is definitely where all the buyout action is,” said Tom Lamb, managing director UK of Barclays Private Equity. “After three years of waiting for a recovery that has not arrived, [vendors] have become increasingly realistic in their price expectations.”


Despite the anticipation of a big increase in public-to-private deals in 2003, only four PTP deals have been recorded to date, compared with a total of 22 completed in 2002. Buyout exits have also proved scarce, with no flotations and only seven trade sales recorded so far this year, compared with a total of 153 in 2002.


The surge in mid-market activity has not been reflected in the £100m-plus bracket where only a couple of deals were completed during the quarter. The largest deal to complete was CSFB Private Equity’s £1.2bn sale of Gala Clubs to Candover and Cinven. Although the total value of £100m-plus deals was comparable to the mid-market total, although larger deals accounted for just five per cent of the total deal volume.


Mark Pacitti, private equity partner at Deloitte & Touche, said that continental Europe was likely to prove the focus of bigger ticket deals in 2003. “Private equity players focused on the top end of activity are finding opportunities in continental Europe where there are few dominant local VCs and mega deals have held-up due to restructuring programmes by big businesses.”


UK mid-market practitioners have reported a notable improvement in the dealflow since the turn of the year, both in terms of the quality of companies in the pipeline and the more reasonable valuations.