UK buyouts slow, values rise

The volume of buyouts in the UK slowed dramatically during the second quarter of the year, as a number of factors, such as the general election, delayed deal timetables.

Deal value in the second quarter was £2.7 billion (€3.3 billion; $4.1 billion), almost half that of the £5.2 billion-worth of deals transacted in the first quarter, according to the latest report from the Nottingham-based Centre for Management Buyout Research (CMBOR).

Christiian Marriott, a director at Barclays Private Equity, the private equity firm which sponsor the research, said that a range of factors in the market had created uncertainty and delayed timetables. “With volatility in global equities, a looming general election and uncertainty around future capital gains tax, it is not surprising that the momentum in UK buyouts has flagged,” said Marriott in a statement.

Many in the buyout community delayed long-term decision making until after the election of May 6, waiting to see how a new government would take shape and address the various fiscal challenges faced by the UK.

Despite the recent slowdown, the overall volume of buyout activity for the year to date has dramatically increased compared to the lows of 2009. There have been 87 private equity-backed buyouts in 2010, with a total value of £7.9 billion. This is markedly more than during the whole of 2009, when there were 120 deals with a combined value of £4.7 billion.

The overall increase has been driven largely by the high number of secondary buyouts toward the beginning of the year. Deals such as Pets at Home, which Kohlberg Kravis Roberts purchased from Bridgepoint, and Marken, purchased from ICG by Apax Partners, contributed to the fact that secondary buyouts accounted for more than 70 percent of the total deal value in the first quarter.

The average size of private equity-backed buyouts in 2010 has more than doubled in since 2009 to £92.2 million from £39.5 million, the report said.

Exit activity has remained on a par with 2009, the report said, but Marriott predicted a gradual increase in IPO activity as the year goes on. “We may […] see a gradual increase of sizeable flotations in the second half of 2010, particularly where firms are willing to reduce debt levels before or after IPO, with some potentially well received listings in the pipeline.”