The European buy-and-build market seems to be improving, with values of add-on acquisitions on the increase, according to Silverfleet Capital and Mergermarket's latest European Buy & Build Monitor.
The research found that the average value of European add-on deals was £66 million in Q2 – the highest figure for seven quarters, and well up on the £47 million figure recorded in Q1.
Deal volumes were slightly down on the previous quarter – 61 compared to 63 in Q1 – although the report suggested the figures for Q2 are likely to be revised upwards once more data becomes available, pushing the final total higher.
The Nordic region was the most active area. with 15 add-ons completed, followed by the UK and Ireland where 12 add-ons were done. France rebounded from a slow Q1, with add-on deals up from two to seven, while Germany, Switzerland and Austria only saw five add-ons completed, compared to nine in the first quarter of the year.
While activity levels in Southern Europe remained relatively low – four in Spain and Portugal and just two in Italy – the findings illustrate that things “are starting to improve”, according to Neil MacDougall, managing partner of Silverfleet Capital. “The indications are that there’s some rebound in overall numbers. Values are rising and that is positive for the private equity industry,” he told Private Equity International.
Back in 2009, if somebody tried to put together a €240 million syndicated facility they probably would have had to get 10 banks together and nobody would have underwritten anything. So definitely things have improved from a borrower’s perspective
Two add-ons in particular were of significant scale: the €303 million acquisition of ATC Group, a global fiduciary services business headquartered in the Benelux, by Blackstone-backed Intertrust; and the €250 million add-on of the service solutions division of Hochtief Solutions by Clayton, Dubilier & Rice-backed Spie.
These acquisitions were financed by additional syndicated term loans of €200 million and €240 million respectively, which demonstrate the strength of the European debt market, according to the study.
“The average value definitely illustrates it’s relatively borrower-friendly in terms of financing at the moment and that’s making deals a bit easier to pull off,” MacDougall said. “Back in 2009, if somebody tried to put together a €240 million syndicated facility they probably would have had to get 10 banks together and nobody would have underwritten anything. So things have definitely improved from a borrower’s perspective.”
The latest acquisition by Dunedin-backed CitySprint, a same-day distribution company, is one recent example of activity in this space. The deal – for Enfield-based The Courier Service – is the business’ tenth add-on since Dunedin invested in the business in December 2010. “It puts the business on track to achieve 80 percent turnover growth over three years,” Nicol Fraser, a partner at Dunedin who sits on CitySprint’s board, said in a separate statement.
UK-based Dunedin has reached a £300 million hard-cap for its Fund III, exceeding its £250 million target in recent weeks. The fund, which came to market in the third quarter last year, held a £240 million first close in December 2012.