UK mid-market activity halves

Deals in the UK between £100 million to £500 million in value have finally capitulated to the credit crunch and dropped to £3 billion in 2008, compared with £7 billion ($13.8 billion; €8.9 billion) in the first half 2007.

The mid-market had to date shown some resilience in the face of the global liquidity crisis, which has hit large buyouts hard.

The total size of the market in the first half of 2008 is £11 billion; down from £24.5 billion recorded in the first half of 2007 and the lowest first six months since 2004, according to the latest figures from the Centre for Management Buyout Research, founded by Deloitte and Barclays Private Equity.

Christiian Marriott, head of investor relations at Barclays Private Equity, told PEO: “There’s just not much up for sale. It’s a real shortage of good quality deal opportunites. You can still get debt but sellers are sitting on assets and waiting to see how the market goes, especially if the business isn’t top notch.”

An increased volume of family divestments in March showed the knock-on effect of the implementation of a less favourable capital gains tax regime but the numbers do not equate to a significant uplift in the overall value of that market.

A reversal of fortunes has been seen in the retail, leisure and property and construction sectors with drops of £12.5 billion to £400 million, £1 billion to £2 million and £1.8 billion to £300 million respectively compared with the first half of 2007.

Business services has seen the largest increase of the industry groups with a jump from £2.4 billion to £3.6 billion compared with the same period in 2007.

Mark Pacitti, corporate finance partner at Deloitte, said in a statement: “While deals at the top end of the market were hit hard last year, the mid market range had proved more resilient.  However, the latest figures show that the private equity market is now feeling the credit crunch much more comprehensively and has hit a four year low overall.”  He said there had been a widespread assumption trade buyers would make the most of private equity houses struggling to access debt and step into the breach. 

In fact of the 14 exits over £100 million this year, only two or three could be classified as trade-led.

Tom Lamb, co-head of Barclays Private Equity, commented: “The types of deals which have made it past the finishing line in the last few months have tended to be defensive plays.”

The top four deals completed in the first half of 2008 were Emap at £2 billion, Biffa at £1.3 billion, Abbot Group at, £900 million and Northgate Information Solutions at £500 million. They were all public to private deals. 

Pacitti said: “We are seeing a stalemate situation where private vendors are unwilling to budge on price and acquirers are holding out for a bargain; mirroring problems seen in the housing market.”

At the same time, public to private deals are holding up, making up 48 percent of the market value.   With private vendors unwilling to discount, it is likely more private equity firms will look at public companies, Pacitti said.

However Lamb said: “With large coffers of uninvested capital, certainly running into the billions of pounds, and a predicted quiet summer, private equity houses solely focussed on the UK are unlikely to deploy much of their investors’ capital in coming months.”