UK poised for LBO revival

A leading corporate financier says the downturn in the UK’s large buyout market may be short-lived and that 2003 could yet equal last year’s total deal value.

According to Mark Pacitti, a partner at Deloitte & Touche Corporate Finance, the UK buyout market could at least equal the total value seen last year, with the promise of better times ahead in 2004.

By the end of the third quarter of 2003, the Centre for Management Buyout Research at the University of Nottingham had recorded around £9bn worth of deals. This meant that the projected total for the year was about £12bn, meaning a 20 per cent fall on the £15bn recorded in 2002 and nearly 40 per cent down on the £19bn 2001 total.

But with the likes of Scottish & Newcastle’s pub estate, retailers Debenhams and New Look and leisure operator Tussauds Group lining up sales to private equity firms for possible combined proceeds of around £6bn, Pacitti says last year’s total could be beaten. “The year-end picture could yet be more rosy than we had all imagined,” he said.

Such a finish to the year would mask what has been the real success story in UK buyouts so far this year – the mid-market. According to CMBOR’s figures, deals worth under £100m had remained stable in the first nine months of this year while more deals had already been completed in the £25m to £75m category than in the whole of 2002.

However, Pacitti warns against taking anything for granted: “There is still considerable difficulty in getting deals across the finishing line because of problems that surface in due diligence and vendors’ price expectations. There has been so much comment about the capacity private equity firms have for doing deals that vendors are holding firm on price in their determination not to allow financial buyers any bargains.”

Whether or not all of today’s mega-deals make it into the books this year, the market appears well set for 2004, particularly in light of the possible re-opening of the IPO market as stock market confidence strengthens. “Quite a few brokers have got healthy pipelines and there will be a lot more IPOs and rights issues next year,” said one market source. Supporting that view is today’s news that private equity-backed holiday camp chain Center Parcs is preparing a £300m listing in the near future.