UK buyout volume falls to £15bn

UK buyout activity has fallen to its lowest level since 1996 as the market continues to be hampered by a lack of investment opportunities and high valuations.

2002 saw UK private equity deal volume fall to its lowest level since 1996 with only 120 deals above £10m completed during the period, according to a report published by KPMG’s Private Equity Group.


Transactions with a total value of £14.6bn were completed last year compared with £20bn in 2001, when 132 deals closed. It is the first time in over a decade that the buyout market has falled for the second consecutive year.


According to Charles Milner, head of corporate finance at KPMG’s Private Equity Group, the drop in deal activity was the result of two features. “The key factors suppressing private equity activity in 2002 were a combination of high vendor pricing expectations, a scarcity of quality deals and the general uncertainty in the economic climate”, he added.


Striking about KPMG’s findings is the predominance of large multi-billion pound, transactions which completed in 2002. The top two deals last year, Cinven and Enterprise Inns’ acquisition of Voyager for just over £2bn and the £2.05bn buyout of Southern Water, accounted for nearly 30 per cent of the total deal value.


Milner was more positive about the level of activity at the lower end of the buyout market. “Although 2002 was a disappointing year in terms of activity within the market, the lower end of the middle market has in fact held up. There is a feeling in the market now that a number of vendors, particularly those in the private rather than the public marketplace, are becoming more realistic in their price expectations and more committed to completing deals.” 


The report also highlighted a 50 per cent fall in public-to-private transactions, down from 28 in 2001 to just 14 last year, with a total value of just over £2.7bn, 57 per cent down on the previous year.


The largest PTP deals in the UK in 2002 included Clayton, Dubilier & Rice’s £433m acquisition of UK caterer Brake Bros. in June, Duke Street Capital’s summer deal to acquire fitness group Esporta for £230m and Morgan Stanley’s acquisition of Saville Gordon Estates for just under £500m in May.


Last month, a survey of practitioners predicted that PTP deals in the UK would pick up in 2003. The Deloitte & Touche Private Equity Confidence survey for the fourth quarter of 2002, showed that 65 per cent of venture capital experts expect PTPs to increase in the next six months.


Last week Thomson Financial published data showing that fundraising has also been hampered by depressed economic conditions. Fundraising by UK buyout firms fell by just under half last year to £6.85bn against a 2001 figure of £11.3bn.