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European management buy-outs

Although deal volume rose slightly, the continental European buy-out market faltered in 2001. Much of this can be accredited to the global economic uncertainty that characterised the year, say the authors of CMBOR's European management buy-outs survey. As is often the case two or three individual country markets, such as Germany, France and the Netherlands, heavily influence the figures.

The year-end figures produced by CMBOR have confirmed that 2001 was another relatively good year for the European buy-out market. Deal numbers were higher than in the previous year and deal value was comparable to 1999, although well below the 2000 total.

• Buy-out market value falls in 2001
  
  The final year total deal value of €31.6 billion was 13 percent lower than the record of €36.2 billion set in 2000 but is nevertheless still the third highest value ever recorded.
  
  Last year provided the third year in a row of a total deal value above €30 billion.
  
  The European total for 2001 was slightly higher than the total for the UK market, which also fell in 2001.
  
  
• Small growth in deal volume in 2001
  
  There were 504 completions in 2001, slightly higher than the 495 in the previous year and the same number as in 1999.
  
  Deal numbers have in fact been fairly constant at around 500 for the last five years.
  
  
• MBO volume falls in 2001 but MBI volume increased
  
  The number of MBOs fell slightly from 328 to 317, whereas the volume of MBIs increased by 12 percent to 187.
  
  MBIs have grown significantly in importance, providing about a third of all deals in 2001, compared to a quarter in 1998 and only 12 percent in 1995.
  
  
• MBI value falls slightly but increases in importance
  
  MBI value dropped slightly from to €26.0 billion to €24.9 billion in 2001.
  
  Nevertheless MBIs represented nearly 80 percent of the total deal value, the highest percentage since records began.
  
  The annual total value of MBO deals dropped by a third for the second year in a row falling from €10.1 to €6.7 billion.
  
  
• UK buy-out market value overhauled by continental European value
  
  The total UK buy-out market value also fell in 2001, at €31.1 billion this was 19 percent lower than the previous record of €38.2 billion set in 2000.
  
  As a consequence the UK total was marginally lower than the continental European figure after being ahead in 2000.
  
  Deal numbers rose in the UK for the first time in four years with 619 completions, although still some 12 percent lower than the record 700 deals recorded in 1997.
  
  The fall in total deal value in the UK led to a decrease in average deal size to €50.2 million, compared to the 2000 average of €64.0 million.
  
  
• Number and value of deals: country differences
  
  France, despite a 3 percent fall in volume, easily remained the most active country for buy-outs in 2001 with 126 deals.
  
  Germany saw a further large increase in deal volume last year, taking over from the Netherlands to become the second most active market with 92 deals.
  
  Sweden also saw a large increase in activity last year, after deal flow had slowed in 2000.
  
  Some of the medium sized markets such as Belgium, Ireland and Spain also had good increases in 2001.
  
  Conversely Italy and the Netherlands showed significant reductions in deal volume, with falls of 50 and 28 percent respectively.
  
  Activity has remained low in a number of countries, notably Austria, Norway and Portugal.
  
  German deal value halved to €7.5 billion but was the most valuable buy-out market ahead of France with €6.4 billion.
  
  Buy-out market value increased hugely in Belgium, Ireland and the Netherlands.
  
  Deal value in Italy fell by a massive 75 percent, with the country dropping from fourth to eleventh when ranked by value.
  
  A few other countries saw large falls in value, notably Austria, Denmark and Switzerland.
  
  Ireland produced the highest average deal value of €198 million, followed by Norway (€105 million), Germany (€81 million) and the Netherlands (€80 million).
  
  The value of buy-outs relative to the size of the economy in the UK remains well ahead of all other European countries except Ireland, where the ratio was boosted by the huge Eircom buy-out.
  
  Following Ireland and the UK were Sweden, the Netherlands and Finland with buy-out values equating to 1.3, 0.94 and 0.83 percent of GDP respectively.
  
  
• Trend towards larger deals slows down in 2001
  
  The number of €250 million plus deals decreased from 34 to 27 last year, but still provided 73 percent of the total market value from just 5 percent of deal volume.
  
  Average deal value was also down, dropping by 14 percent from €73.1 million in 2000 to €62.6 million in 2001.
  
  Nevertheless as in 2000, three deals were valued at over €2 billion.
  
  Public to private deals were again to the fore providing the largest deal of the year, at €3.0 billion, the Irish Telecommunications company Eircom.
  
  The Eircom transaction is the largest deal in continental Europe since records began.
  
  Germany again featured strongly, providing four out of the eight largest deals in 2001.
  
  
• Encouraging signs at lower end but mid-market deals seem more scarce
  
  The number of sub €25 million buy-outs rose by 11 percent compared to 2000.
  
  As well as a decrease in the number of €250 million plus deals, overall deal flow above €25 million has dropped by a quarter compared to 2000, again mirroring the UK trends.
  
  It is clear that there has been a fall in the number of mid-market deals in Europe over the last two years.
  
  
• Local divestment remains the most common source of buy-outs
  
  Local divestment remained the most popular source of buy-outs in Europe, accounting for 40.7 percent of all activity.
  
  Family and private deal numbers fell significantly to provide just 17.1 percent of the total.
  
  Divestment from foreign parents accounted for almost a fifth of all 2001 deals.
  
  
• Public to private activity continues to slow but deals get bigger
  
  Deal volume decreased from 19 in 2000 to just 14 last year representing a fall from 3.8 to 2.8 percent of all deals.
  
  The total value of €5.7 billion for public to private deals in 2001 was 10 percent lower than the previous record set a year earlier (€6.3 billion).
  
  Public to private buy-outs accounted for less than 3 percent of all buy-out volume but still provided over 18 percent of the total buy-out market value.
  
  The average value of public to private deals rose further to €406 million.
  
  
• General manufacturing and business services sectors take the lead in 2001
  
  The most active sector was General Manufacturing, followed by Business Services, which accounted for 13 and 10 percent of total activity respectively.
  
  The Chemicals sector more than doubled in value to become the largest industry sector by value at €7.1 billion.
  
  This was closely followed by the Telecommunications sector, which also increased in value to €6.5 billion.
  
  
• Technology sector deals still on the increase
  
  The number and value of technology sector deals has been increasing steadily over the last 10 years, particularly since 1996.
  
  In 2001 there were 103 deals, compared to 71 a year earlier.
  
  Value rose to €7.3 billion in 2001, mainly driven by some large telecommunications deals.
  
  Technology sector buy-outs represented 20 percent of all deal flow (compared to 14 percent in 2000) and 23 percent of value (compared to 20 percent in 2000).
  
  
• USA LBO houses still active in large buy-outs
  
  The total value of deals where USA LBO houses were involved in continental Europe decreased from €5.3 billion in 2000 to €3.4 billion in 2001.
  
  US private equity houses were involved in just 6 European buy-outs in 2001, but these deals represented almost 11 percent of the total buy-out value for 2001.
  
  Investment in the UK deals was slightly greater at €3.7 billion, compared to €2.7 billion in 2000.
  
  
• Higher value deal prices fall during 2001
  
  The calculated entry P/E ratio averages fell for deal size ranges above €100 million in 2001.
  
  P/E multiple changes for mid-market and smaller deals were mixed, although generally static or rising.
  
  Debt levels in deal structures rose slightly to 43.3 percent in 2001, with the average level of equity falling to 45.3 percent.
  
  
• Buy-out exit numbers reduced in 2001
  
  The number of exits recorded decreased from 109 in 2000 to 88 in 2001.
  
  The main difference between the years was in the number of flotations, which decreased from 17 to only 6 in 2001.
  
  The French hospital operator Compagnie Generale de Sante was the largest buy-out flotation in 2001 and became the fifth largest buy-out flotation recorded to date.
  
  Secondary buy-out numbers also decreased slightly as did trade sales.
  
  The largest and record-breaking exit in 2001 was the trade sale of the Italian company Arioli for €1.5 billion.

Copyright © 2002 CMBOR

The Centre for Management Buy-out Research is sponsored by Barclays Private Equity and Deloitte & Touche at the Nottingham University Business School. The Centre for Management Buy-out Research (CMBOR) was founded by Barclays Private Equity Limited and Deloitte & Touche at Nottingham University Business School in March 1986 to monitor and analyse management buy-outs in a comprehensive and objective way. As an independent body, CMBOR has developed a wide-ranging and detailed database of over 17,000 companies, which provides the only complete set of statistics on management buy-outs and buy-ins in Europe. CMBOR publishes regular reports on buy-out trends and relevant issues in its UK Quarterly Review and annual European Management Buy-out Review. Centre for Management Buy-out Research (CMBOR), Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, 44 115 951, Andrew.Burrows@nottingham.ac.uk, www.cmbor.org