Private equity transactions dropped again in the first half of 2009, according to European Private Equity in Review, a report by mergermarket.

Private equity transactions dropped again in the first half of 2009, according to European Private Equity in Review, a report by mergermarket.

The report concluded that private equity buy-out and exit transactions across Europe fell by 61 per cent and 87 per cent in volume and value terms.

Unsurprisingly, the report cited market uncertainty and leverage availability as major factors behind the lack of deals.  

There was, however, an increase in deal volumes and valuations in the second quarter of the year, with buy-outs up by a single deal to 125 at a combined value of €4.6 billion (£4 billion) – a 56 per cent increase from the first quarter. Exit transactions increased by 14 per cent and valuations more than doubled to €2.8 billion over the same period.

The secondary market has also suffered, with deal flow and valuations down 72 per cent and 87 per cent compared with the same period in 2008, although again, there was a modest improvement in the second quarter. The largest secondary deal was the sale of Candover Partners’ 67 per cent stake in Mackenzie Wood, a UK-based energy research firm, for €654 million.  

The mergermarket report shows investors are structuring deals differently to combat the market difficulties, including the use of deferred earn-out clauses and vendor financing to ease the liquidity gap.

The UK and Ireland have retained their position as the main hub of private equity activity, with 51 buy-outs worth €1.3 billion and 23 exits valued at €1.2 billion coming to market. The region accounted for 20 per cent of buy-outs in terms of volume, and 17 per cent in terms of value share.

Germany, Austria and Switzerland were close behind with 44 buy-outs in the period, 17 per cent of the total volume, although the bulk of the activity was in the lower end of the market, which is why the region accounted for only 2.6 per cent of valuations.