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UK MBO figures Q3 2003

In the spring of 2003, the UK experienced an uptick in the level of management buy-out activity. This resurgence has carried on through the third quarter of the year. KPMG's private equity group assesses the state of the MBO market in the UK and highlights its continued increase in activity.

The mid-market shows the healthiest improvement. The value for this sector in the first three quarters of 2003 has already almost overtaken the value for the whole of 2002, with £2.12bn compared to £2.18bn in the previous year. The quarter also saw ten public-to-private deals worth £1.52bn, the highest figure for a single quarter for over three years.

Commenting on the quarter, Charles Milner, Head of Corporate Finance within KPMG's Private Equity Group said ‘Activity has certainly picked up: there are more opportunities out there and we've seen a real step up in the number of deals on which we are advising that have now entered exclusivity. The rising confidence we noted in the spring has fed through to the increase in completions during the third quarter.'

The mid-market (£25m-£100m) continues to represent the healthiest part of the market. The value for this sector of the first three quarters of 2003 (£2.12bn) has almost surpassed its total value for 2002 (£2.18bn). Milner added ‘The strength of the middle market is particularly encouraging and again underlines the essential role the private equity community plays in providing finance for this important part of the UK economy. We are still to see the return of larger deals and even though the total value of deals is likely to be down for the third year in succession, the important factor is that the number of deals looks to be holding up.'

The quarter saw ten public-to-private deals worth £1.52bn, the highest number in a quarter for over three years. Milner said ‘This is indicative of both the greater confidence acquirers are exhibiting in assessing the prospects of target companies and the increased readiness on the part of vendors to accept current valuations. However, these deals are still difficult to close and seem to be attracting increasing institutional scrutiny.'

Regarding exits Milner continued ‘The recovery in the equity markets is also giving private equity houses greater exit options. Next year we expect to see a number of private equity backed IPOs and the return of trade buyers using funding raised on the public markets.'

Milner commented ‘The overall market is looking healthier than it has for a while, although this increased activity is still tempered with a fair degree of caution. Funding is available, but both the equity investors and the debt lenders are understandably insisting on thorough due diligence and it can still take a considerable amount of time to complete deals.'

Copyright © 2002 KPMG Corporate Finance

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KPMG Corporate Finance - global independent advisors to the middle market www.kpmg.co.uk