Data released today by KPMG Corporate Finance reveals that the first quarter of 2002 saw still depressed MBO volume and value in the UK. The data, which covers MBOs over £10m in value, reveals that the number of MBOs during the period compared to Q1 2001 was down by 31 per cent, from 36 to 25, and the value of these transactions fell by 44 per cent, from £5.6bn to £3.1bn.
Iterating market sentiment that the only way for the MBO market now is up, Charles Milner, Head of Private Equity at KPMG Corporate Finance, said: “There is evidence to suggest that the market is ripe for an upturn. Historically, investments made at this stage in the economic cycle have yielded good returns for private equity investors. Plus, a number of potential vendors seem to be biding their time, waiting for conditions to improve before going to market.”
One deal, the Unique Pub Co/Voyager Pub Group MBO, at over £2bn in value made a big impact on the statistics. For example, the average value of deals covered was only down from £156m to £126m (19 per cent) compared to the same period in 2001. Only four other transactions exceeded £100m in value though: Dignity Caring Funeral Services (£245m), Palmer & Harvey McLane Holdings (£165m), Young’s Bluecrest Seafood (£137m) and Virgin Active (£110m).
Tellingly, one of these transactions (Young’s Bluecrest) was a secondary sale by L&G Ventures to CapVest. As Milner commented: “Secondaries are proving increasingly acceptable both as a form of exit for private equity investors and as an acquisition on the buy side. Once very rare, secondaries are becoming a normal part of the industry, reflecting the overall maturity of the private equity market. ”
As affirmation of the depressed state of the market, the appetite for public-to-private (PTP) MBOs also slumped by two thirds compared to Q1 of 2001 with deal numbers falling from nine to three and their total value dropping by 95 per cent: from £2bn to £108m. Average PTP deal size is now back at 1996 levels at £36m. The three PTP deals that did take place were Cedar (£54m), Folkes Group (£39m) and Princedale Group (£15m).
Milner and colleagues were wary of predicting an imminent up tick in deal volume and value though, preferring instead to point to the second half of the year as a time for optimism. “The market remains poised to pick up, but as yet the activity levels are not sufficient to suggest that this will occur in the next quarter but is more likely in Q3 or Q4. Both debt and equity funding is available to execute quality transactions, however global economic uncertainty is taking its toll on volumes”, said Milner.