The UK market for private equity sponsored M&A is on a roll, with secondary buyouts driving much of the action.
On the back of recent buyout activity, the third quarter of 2004 was the busiest quarter for nearly four years, according to data compiled by professional services group KPMG. During the period, 43 larger-than-£10 million private equity backed buyouts were completed with a combined value of £4.43 billion (€6.4 billion; $7.95 billion), £104 million on average.
A dozen of these deals were secondary buyouts, i.e. deals where both buyer and seller are private equity sponsors. KPMG’s Private Equity Group found that these 12 secondaries accounted for 54 percent of all deals by value.
The group also said that eight of the ten largest buyouts of the quarter were secondary transactions. The eight secondaries to make the top ten were Four Seasons Healthcare Group (£775 million); Safety-Kleen Europe (£280 million); Maplin Electronics (£224 million); Pets at Home (£230 million) ; Paramount Hotels (£215 million); Southern Cross Healthcare (£167 million); Survitec (£146 million); and Hillarys Blinds (£115 million).
Charles Milner, head of corporate finance at the group, said in a statement that the prominence of secondaries in UK private equity was driven by the fact that private equity firms were aggressively looking to deploy uninvested capital. “The high number of secondaries is in part a reflection of the wall of capital waiting to be invested in private equity and this is resulting in good prices for these sales,” Milner said.
Milner also insisted that despite their relative importance, secondaries were not the only exit route available for private equity vendors. “Private equity houses are successfully returning funds to investors through a variety of other means, whether through trade sales, IPOs or refinancing.”
KPMG argues that this multitude of exit routes currently available to private equity firm ensures that portfolio investments are being realised at competitive valuations. Michael Davies, a spokesperson at the firm, said in an interview the argument that private equity firms desperate to achieve realisations in order to be able to raise fresh capital were selling assets to each other at knock-down prices was cynical and incorrect. “We’d be very worried if secondaries were the only form of exit going on, but patently it isn’t,” Davies said.
KPMG also reported that with over £13 billion worth of private equity deals already completed and another £4 billion pending, 2004 was already a busier year than 2003. Said Milner: “2004 looks set to finish on a high. The fundamentals of the buy side of the private equity equation look strong with private equity houses confident ahead of the next round of fundraising and banks prepared to back healthy debt ratios in the quality deals.”