Private equity growth ‘underestimated’

A new report from investment bank JP Morgan suggests that the importance of private equity within the context of global M&A may be greater than previously thought.

Private equity may be playing a greater role in global M&A than previously thought, according to a new report by investment bank JP Morgan, which has arrived at a broader definition of what constitutes a private equity deal.

The report found that from the beginning of 2001 until the end of the third quarter of last year, buyout groups accounted for announced transactions worth $353 billion in Europe (20 percent of total M&A) and $208 billion in the US (ten percent of total M&A). 
The Europe/US combined total of $561 billion is $110 billion higher than prior estimations. It is understood that JP Morgan has re-defined a private equity deal to include any deal carried out by a buyout fund, a consortium of funds, an individual, a group of individuals and a financial buyer in conjunction with a trade buyer.

Paul Gibbs, head of M&A research at JP Morgan, told the Financial Times that compiling the data is difficult because of the need to evaluate each deal on a case by case basis to identify whether it is a private equity deal or not.

Europe has been a particularly happy hunting ground for financial buyers in recent years for a number of reasons. They include: an abundance of capital; the willingness of corporations to divest non-core subsidiaries at reasonable valuations; and the relative absence of trade buyers in many sectors.

According to a separate report by M&A database owner Bureau van Dijk, it is not only European houses benefiting from these fruitful conditions. The report found that US-based private equity funds accounted for €13 billion of deals in Europe in the first half of 2004, representing 26 percent of the total. This is €5.3 billion more than they invested in the first half of last year, and a fourfold increase on their €2.9 billion total in the first half of 2002.

A host of US buyout groups with European offices were joined last month by San Francisco-based Hellman & Friedman, which launched a London office in conjunction with the raising of a new $3.5 billion fund.