UK mid-market strength masks LBO slowdown

Deals worth £3.6bn were completed in the UK in Q1 of 2004, up from £3.34bn for the same period last year, despite a drop in larger LBO activity.

The first quarter of 2004 saw overall growth in the UK buyout market, largely fuelled by strong activity in the mid-market sector of deals up to £250 million (€380 million; $455 million), according to figures released by KPMG’s Private Equity Group.

In the UK, a total of 28 transactions were completed at a total value of £3.6 billion (£5.5 billion; $6.6 billion), an increase from a figure of  £3.34 billion in the same period last year.

Although the number of deals was up in the period (28, compared with 25 last year), the average value of those transactions went down to £129 million, compared to £134 million in Q1 2003.

Of the 28 deals completed, 24 were in the mid-market sector, with a value of £1.54 billion, which is the highest value quarter in this sector for more than two years.

The UK figures mirror the wider pan-European trend in relation to mid-market activity, where in 2003 the mid-market accounted for almost one-third of all transactions. The volume of mid-market European buyout deals increased by 41 percent in 2003 and the value of deals rose by 27 percent, up to €12.9 billion.

The four UK transactions above £250 million that were completed in the quarter included the sale by Candover of its stake in Baxi Group to BC Partners for £663 million and the Hicks Muse purchase of Weetabix for £642 million.

Commenting on the reduced level of larger LBOs in the UK, Charles Milner, head of corporate finance at KPMG’s Private Equity Group, said in a statement “Private equity houses are now sourcing the larger LBO deals on a pan-European basis…the main focus is now on the Continent where economic restructuring is providing the greatest source of deal flow.”