PRINT THIS PAGE Latest KPMG MBO statistics
15/01/2002. Source:KPMG Corporate Finance.
Activity at the larger end of the management buy-out market slowed dramatically in the fourth quarter of 2001 with 22 deals worth £1.4bn – the lowest number of transactions since 1995. The prospects for the year ahead however look more promising, according to the latest figures from KPMG Corporate Finance. Despite the dismal end to the year, a total of 124 transactions with a cumulative value of £18.9bn were completed in 2001. This compares with 158 deals worth £20.6bn in 2000 representing a fall of 22 per cent in volume and eight per cent in value.
Buy-out activity held up well until the final quarter of 2001, which saw a 54 per cent drop in volume and a 67 per cent decline in value compared to Q4 2000. Charles Milner, head of private equity at KPMG Corporate Finance, says: ‘The normal flurry of activity at the year-end was noticeably absent for well-documented reasons including the global economic slowdown and particularly the tragic events and repercussions of 11th September.'
Milner continues: ‘Despite this result we believe that 2002 looks more promising as vendor expectations move into closer alignment with prices private equity buyers are willing to pay. This will inevitably lead to more closures - it is simply a matter of timing. The first few months of the year will be crucial in determining the extent of any recovery. A number of private equity buyers believe that 2002 will be an opportunity to acquire quality businesses at realistic prices.'
The buy-out market has been driven for some years by deals at the high value end but these fell away in the last three months of 2001. The top deal for the quarter was £230m - the secondary MBO of Leisure Link Group - in the previous three quarters four transactions completed at a value of £1bn or more. Milner commented: ‘Over the whole year, deals in the £250m+ range held up totalling £13.3bn - only down four per cent on 2000. However this was clearly weighted to the first three quarters. Tougher economic conditions biting into company results, less surety in the syndication market and less transparency on future earnings - all these factors caused a pause in larger deal activity.'
The total value of Public to Private (PTP) transactions for the last quarter of 2001 was down 88 per cent on the same period last year. Only two PTPs, WT Foods at £129m and Brockhampton Holdings at £77m, completed in Q4. However PTPs continue to command a significant share of the private equity market generating a third of the value of all deals completed in 2001.
Milner comments: ‘PTP activity fell off in Q4 in line with the market recording the lowest level of PTP activity since 1996. However, PTP transactions are now a recognised feature of the marketplace and will remain so. We will see more PTP activity when the market picks up.'
In summary Milner notes: ‘Overall, 2001 held up well despite some predictions of an early free fall. The total value of deals only dropped eight per cent from £20.6bn in 2000 to £18.9bn in 2001 which, considering market uncertainty as we started the year, showed great resilience especially compared to the decline in overall M&A activity. It can be no great surprise that continued economic slowdown and the horrific events of 11th September finally took their toll. Despite this, the average deal value increased by 18 per cent from £130m in 2000 to £153m in 2001, due to some £1bn+ deals completed earlier in the year.'
Looking forward he adds: ‘As a number of companies come under pressure from banks or look to restructure, 2002 could well be a vintage year for private equity buyers looking to acquire quality businesses with strong management teams. Unlike many other potential buyers, the private equity firms have substantial resources available to invest.'
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Copyright © 2002 KPMG Corporate Finance
Figures supplied by Dealogic
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