Receivership: The most common exit in the UK this year

Since the beginning of 2009, 10 private equity-backed businesses have been put into receivership. This compares to eight exits via trade sale and three via secondary buyout.

In a stark illustration of the problems faced by the private equity industry today, the most common exit route for private equity-backed businesses in the UK is now receivership. As lending continues to be scarce and industries contract further amid a global financial downturn, more and more businesses are finding it difficult to stay afloat.

We need to see a number of factors converge before deal numbers begin to climb, including earnings visibility and an increase in bank debt availability.

Christiian Marriott

For the first six months of the year there were 10 receiverships of private equity-backed businesses worth more than £10 million (€12 million, $16 million), compared to eight exits via trade sale and three secondary buyouts, according to latest research from the Centre of Management Buyout Research (CMBOR). There has been no exit via stock market flotation of a private equity portfolio company in the UK for two years.

Lack of access to finance and continuing high valuations have meant that investment activity has also continued to drop. The total value of buyout activity in the first half of 2009 was £3.2 billion  – the lowest six-month period the UK has seen since 1995. This compares to £12.5 billion for the same period in 2008.

Only nine buyouts broke the £50 million-mark in 2009, the largest being the £1.25 billion public-to-private of technology company NDS Group, a co-investment between buyout house Permira and media conglomerate News Corporation. The second largest was the recently finalised acquisition of oil services firm Wood Mackenzie by Charterhouse Capital for £553 million.

“What is clear is that market recovery will not happen overnight,” said Christiian Marriott, a director at Barclays Private Equity, which sponsored the research. “We need to see a number of factors converge before deal numbers begin to climb, including earnings visibility and an increase in bank debt availability.”