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KPMG MBO statistics: April 2002

Deal volumes for larger UK management buy-outs fell once again in the first quarter of 2002. However, the market continues to show signs of being poised to pick up – a recovery expected to begin in Q3 or Q4. According to figures from KPMG Corporate Finance, secondary buy-outs are also becoming increasingly popular as the IPO window remains limited as an exit route.

According to KPMG Corporate Finance, the total volume of larger UK management buy-outs (those with values above £10m) fell 31 per cent in the first quarter of 2002, to 25 deals, with the total value falling 44 per cent to £3.1bn. This compares with 36 deals, worth £5.6bn in the same period last year. The statistics indicate that the market may have bottomed out as deal volumes are similar to the final quarter of 2001. 

Charles Milner, Head of Private Equity at KPMG Corporate Finance, says: ‘The market remains poised to pick up, but as yet the activity levels are not sufficient to suggest that this will occur in the next quarter but is more likely in Q3 or Q4. Both debt and equity funding is available to execute quality transactions, however global economic uncertainty is taking its toll on volumes.'

Milner continues: ‘There is evidence to suggest that the market is ripe for an upturn. Historically, investments made at this stage in the economic cycle have yielded good returns for private equity investors. Plus, a number of potential vendors seem to be biding their time, waiting for conditions to improve before going to market.'

The buy-out market has been driven for some years by deals at the high value end and these transactions have remained illusive this quarter.  However, deal values at £3.1bn were twice that of Q4 2001 due to the £2bn MBO of Unique Pub Company/Voyager Pub Group.  In the quarter there were only four other transactions above £100m in value.

The relative inactivity of the IPO market and trade buyers have combined to create a cloud over exit prospects for buy-outs.  This has undoubtedly been a factor in the depressed level of MBO activity.  It has also furthered the trend towards secondary buy-outs as an exit route. 

Milner comments: ‘It is interesting to note that one of the top five deals this quarter was a secondary buy-out, Young's Bluecrest, which was sold by Legal & General Ventures to CapVest for £137m. Secondaries are proving increasingly acceptable both as a form of exit for private equity investors and as an acquisition on the buy side. Once very rare, secondaries are becoming a normal part of the industry, reflecting the overall maturity of the private equity market. ‘

The total value of Public to Private (PTP) transactions for the first quarter of 2002 was down 95 per cent, from £2bn to £108m, on the same period last year.  There were three PTPs completed in this quarter, Cedar (£54m), Folkes Group (£39m) and Princedale Group (£15m). 

Milner comments: ‘PTP activity fell off further in this quarter and is now back at 1996 levels.  PTP transactions suffer the same issues as other MBOs and while uncertainty rules, volumes will remain depressed.'

In summary Milner notes: ‘The market remains in a very similar state to the end of last year - we appear to be bumping along the bottom. Once economic uncertainty eases, corporates considering disposal programmes may start to execute their plans and private equity investors sitting on large funds will be well placed to take advantage.  We should then see a much more active private equity market, maybe as early as the latter half of 2002.'

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Copyright © 2002 KPMG Corporate Finance 

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