The Centre for Management Buyout Research (CMBOR) said this week that the in terms of transaction volume, the UK buyout industry has had its slowest year since 1994. The 566 transactions that have closed so far this year represent a seven-year low and a further decline on the already subdued 2001 total of 629.
A decline was also evident in terms of deal value, which currently stands at £14.3bn, a sharp drop since 2001 when overall deal value totalled £19.5bn. Average deal value dropped to £25.3m, compared to £31m in 2001 and the peak of £39.6m in 2000.
The good news for the private equity industry is that while the overall market downturn has not been arrested, private equity firms were found to be tightening their grip on the UK mergers and acquisitions market overall. According to CMBOR, which is sponsored by Barclays Private Equity and Deloitte & Touche, 44.5 per cent of all M&A transactions completed this year have been backed by private equity firms, up from 44.1 per cent in 2001 and 14.7 per cent in 1995.
CMBOR attributed the overall decline in buyout activity largely to a decline in the number of large deals, i.e. transactions with an enterprise value of £100m or more. Only 27 large transactions closed compared to 36 in 2002, with total values of £14.3bn and £11.5bn respectively. Mid-market deals on the other hand have held up well, with deals between $50m and £100m accounting for £1.49bn of total private equity investment, against £1.39bn invested in 2001.
Commenting on the current state of the market, Tom Lamb, managing director UK of Barclays Private Equity, said: 'Although the buyout market has suffered its second down year in succession and its worst year since 1997, the out turn is considerably better than many commentators feared 12 months ago when deal values collapsed following September 11. The buyout market has been pretty stable throughout 2002 with the mid-market holding up especially well.”
Lamb added that certain indicators were giving rise to a “little more encouraging” outlook for 2003, including a fall in buyout receiverships, the emergence of more realistic price expectations among vendors and a growing number of quality deals on the market. “Vendors are vending, lenders are lending and I predict that the private equity houses will soon be spending', he said.
CMBOR found that the number of secondary buyouts more than doubled, accounting for 10.8 per cent of 216 exits against 4.9 per cent of 243 exits last year. Commented Lamb: 'The secondary buyout phenomenon shows no sign of abating. Secondary buyouts accounted for one third of the top 25 new deals in 2002 and an astonishing 42 per cent of 'good' exits. It remains to be seen whether many of these businesses are ultimately exitable in the traditional sense and whether 2BOs can deliver satisfactory returns as an asset class.'
Fundraising of UK private equity firms also slowed, reducing from £11.2bn last year to a preliminary 2002 total of £6.1bn. In the last five years over £36bn has been raised by UK based funds targeted at the buyout market.