UK buyout market pins hopes on PTP

Prospects for a turnaround before 2003 remain depressed, but public to privates may yet provide the market with a much-needed shot in the arm.

The UK buyout market continues to suffer from adverse market conditions, according to recent figures published by KPMG. There were no signs that the market has entered a period of recovery, as the value of deals completed in the third quarter dropped 45 per cent against the previous quarter to just over £2.5bn, according to the firm.


KPMG also said that deals completed so far this year stood at £10.6bn, 40 per cent short of the equivalent figure in 2001.


Charles Milner, head of corporate finance within KPMG’s private equity group, said: “Despite some recent claims that the UK buyout market has staged a recovery, we have found no evidence to support this assertion.”


Milner cited a profound flight to quality among financial buyers when looking at purchasable assets, a sustained mismatch of price expectations among buyers and sellers as well as overall economic and political uncertainty among the reasons why the market remained slow. “At present, uncertainty is the killer.” KPMG does not expect any significant improvement to set in before 2003. 


However, what several market practitioners continue to pin their hopes on is the potential of listed UK companies keen to work with a sponsor to be taken private. According to a note published by Ashurst Morris Crisp, the law firm, while public to privates are also subject to price disagreements among buyers and sellers, the outlook for this part of the private equity market remains strong even in the short term.


“Price expectations will come into closer alignment when sustainable trends in the overall economic picture cause buyers and sellers to re-base their views on realistic values. When that happens, there will be a gradual increase in public to private activity as many mid cap companies seriously question the point of being listed.”


Public markets tend to take an adverse view on companies valued at E1.5bn or less, meaning that a private equity funded change of ownership has long seemed an attractive option to businesses caught in a public market liquidity trap. According to Ashurst, there is plenty of deal flow yet to come out of the listed middle market.


“What we are experiencing is not just a short-term reaction to transitory events. Disillusionment with the quoted markets among many mid cap companies, and the risk-averse sentiment among badly burnt investors, mean that the quoted markets will continue to favour companies in the FTSE250.  Difficult times will endure for the remainder of the year and many will take the public to private route.“


The largest PTP completed in the third quarter in the UK was the £616m buyout of Brake Bros backed by Clayton Dubilier & Rice, the US private equity house. As KPMG notes in today’s research, “in contrast to the overall picture, five PTPs completed in the quarter to a value of £1.057bn – the highest level and value of PTP activity for the last 12 months.”


Other entities taken private in the third quarter were Kunick, FCX, Howard Holdings and Esporta, the leisure business taken over by Duke Street Capital in the UK’s first hostile PTP.