Secondary buyouts boost UK deal data

Private equity firms selling assets to one another helped first quarter deal values hit their highest level since Lehman Brothers collapsed.

Secondary transactions dominated the UK buyout market in the first quarter of 2010 with the total value of private equity-backed buyouts at £5 billion ($7.7 billion; €5.7 billion) already exceeding all of 2009. The value of investments recorded was the highest since the bankruptcy of investment bank Lehman Brothers.

Secondary transactions accounted for 73 percent of all UK buyouts by value at £3.7 billion, compared to 20 percent, or £955 million, for all of 2009. In total, 43 buyouts were recorded by the Centre for Management Buy-Out Research (CMBOR) compared to 25 in the last quarter of 2009.

Exit activity also increased to 43 from 31 the previous quarter, and, if this trend continues, the study estimates the number of exits could rise to 172, compared to 109 the previous year.

Some of the largest recorded exits were also secondary transactions, including Montagu’s €800 million sale of Sebia, a medical technology business, to Cinven. The deal, understood to have been worth around €800 million, generated a return of three times Montagu’s original investment. Other secondary buyouts included Kohlberg Kravis Roberts’ £955 million purchase of pet retailer Pets at Home, fetching seller Bridgepoint a return of 8 times its original investment.

The latest CMBOR statistics on UK private equity activity are a welcome change from 2009 figures, which CMBOR said was the slowest year on record in part because of the lack of leverage impeding deal flow.

Christiian Marriott, director of Barclays Private Equity, cautioned however that the strong start to the year may not necessarily signal a sustained resurgence. Instead, he said in a statement, the positive first quarter figures more likely represent “a more gradual recovery over the next few years as confidence returns to the market”.

Indeed, not all the figures CMBOR released showed an increase. Public to private transactions accounted for just 1 percent of UK buyouts during the quarter and fell 80 percent in value compared to 2009 values.