PTP activity to pick up in 2003

2003 should see an increase in UK public to private activity in line with general MBO market trends, according to practitioners.

2003 is expected to see a recovery in UK public to private (PTP) activity, predicted Deloitte and Touche corporate finance partner Mark Pacitti speaking yesterday at the Practical Guide to Public to Privates seminar, hosted by IIR Conferences in London.

Commenting on sentiment currently prevailing in the UK market, Pacitti said: “People are cautiously optimistic that private equity activity will recover in 2003 and public to private activity will remain a key part of the deal source. ” According to a recent Deloitte & Touche Private Equity Confidence survey for the fourth quarter of 2002, some 65 per cent of venture capital experts expect PTPs to increase in the next six months.

Pacitti cited a recovery in share prices, the economic slowdown and caution among private equity fund managers as reasons why PTP activity has tailed off over the past year, with a mere 14 PTP transactions announced in the first nine months of 2002 at £2.4bn, compared with 33 at £4.9bn in 2001, according to data compiled by the Centre for Management Buyout Research (CMBOR),

“The reason PTPs will come back is a reverse of these three things. First, share prices of small to medium businesses have started to drift away from the bigger companies. Second, a year on into the economic slowdown and there is another year’s visibility of trade. Third, private equity buyers have had their year off when the market overheated, now they have to invest their money.”

The number of potential targets remains high, according to Pacitti, with 765 small to medium businesses still quoted on the stock market at market capitalisations ranging from £20m to £500m.

Evidence that a recovery in PTP activity is underway came yesterday with the announcement by UK plant hire firm Lavendon that it has received a second private equity-backed approach to take the firm private. The non-executive directors of Lavendon, John Gordon and John Heywood, said that the second takeover approach is currently more attractive than the first approach, which it received in August.  However, this second approach is also at a very preliminary stage, they said.

Other deals that are currently in the pipeline include the possible take privates of Boosey & Hawkes, Chesterton International, Forever Broadcasting, IDS Group, Mezzanine Group, Ryland Group and Seymour Price.

The largest PTP announced in 2002 was the £850m buyout of Arcadia backed by retail entrepreneur Philip Green. Other entities taken private this year were Brake Bros (by Clayton Dubilier & Rice), Saville Gordon Estates (Morgan Stanley Real Estate Funds), Kunick (Electra Partners), FCX International and Esporta, the leisure business taken over by Duke Street Capital in the UK’s first hostile PTP.