CMBOR – a provider of analysis on buyout markets founded by Barclays Private Equity and Deloitte at Nottingham University in 1986 – predicts that 154 deals (worth a combined £5 billion) will have been completed in the first quarter of 2005. However, the debt bubble and new tax rules cast a cloud over the rest of this year.

‘So far in 2005, the buy-out market has performed strongly,’ says Mark Pacitti, Corporate Finance Partner at Deloitte. ‘However, this bright start to the year may be destined to fade if the availability of debt packages starts to decline. If the banks get nervous, reduced debt packages could have a negative impact on both deal pricing and transaction volumes.’

On top of this, the Inland Revenue has recently announced that it intends to eliminate tax relief on private equity loan stock.

‘It appears that the Inland Revenue’s decision could reduce private equity returns by around ten per cent and will definitely have an impact on the price private equity houses are prepared to pay for businesses,’ explains Tom Lamb, Managing Director UK at Barclays Private Equity. ‘In terms of how this is likely to affect deals which are currently work in progress, there is likely to be hiatus with private equity teams downing tools. At the very least, there will be a major impact in the sector quarter.’