Buy-out transactions booming in UK

Date: 26-03-2008
Source: The Birmingham Post

New data from the the Centre for Management Buyout Research has revealed that deal value for the first quarter this year has so far hit pounds 4.3 billion with predictions it will rise to well over £5 billion by the end of the period. Phil Griesbach, director of Barclays Private Equity in Birmingham, said the numbers were "pretty encouraging" particularly after the 60 per cent decline in buy-out activity in the last quarter of 2007.

CMBOR, founded by Barclays Private Equity and Deloitte, provides analysis of the UK buy-out market. "UK buy-out activity undertaken in 2008 is comparing well with previous years - in part driven by vendors endeavouring to complete deals before the end of capital gains tax taper relief at the end of the tax year. This has alleviated what would normally be a quieter part of the year," said Mr Griesbach.

"Looking forward, the test is whether this activity will continue into the rest of the year or whether we are witnessing an up-front boost because of the impending CGT changes." Nick Johnson, corporate finance partner at Deloitte in Birmingham, said a shuffling of the industry sector order was indicative of a wider change in the economy.

"In recent years, retail, leisure and food and drink have driven deal flow, reflecting buoyant consumer confidence," he said. "In 2007 these consumer sectors accounted for 20 per cent of buy-out values - 40 per cent including Alliance Boots. So far in 2008, consumer deals have fallen to less than five per cent of total deal value". The top performing sectors in quarter one are business services (30%), manufacturing (21%) and technology, media and telecommunications (18%).

Analysing the types of deals completed so far in 2008, Mr Johnson said: "With the credit crunch in full force there has been a question mark over whether the secondary buy-out market would collapse. The Q1 figure of pounds 1.6 billion is down relative to the same period last year of pounds 2.1 billion.

"With full year secondary buy-out activity having peaked at nearly £15 billion in 2007, we are now back to 2005-2006 levels of pounds 8-9 billion per annum. "Looking at public-to-private activity, we have only recorded four deals so far this year, so we are unlikely to repeat the full year numbers achieved in 2006 and 2007 of 24 or 25."

Other findings show that during the first quarter there were four deals completed over the £250 million level - three of which were over pounds 500 million. There were no £1 billion-plus deals, perhaps reflecting the cautious state of the markets and the rising costs of credit. In contrast, deals between pounds 10 million and pounds 250 million provided around half of the total value seen in the quarter.

Secondary buy-outs and public-to-private deals remained the largest sources of buyouts by value, standing respectively at 38% and 41% of total activity.

The Centre for Management Buy-out Research was founded by Barclays Private Equity and accountancy, audit & consultancy firm Deloitte at Nottingham University Business School in 1986. It is considered to be one of the leading analysts of the buy-out market. UK buy-out activity undertaken in 2008 is comparing well with previous years.