Private equity M&A falls as big-ticket disappears

Private equity in Western Europe suffered a dip in deal value and volume during August as the solid start to 2011 ground to a halt.

Following on from average deal volumes of 194 and values of €5.7 billion per month in 2011, private equity deal flow in August posted figures of 113 and €2.4 billion, figures from Zephyr published by BvD shows.

Contributing towards the fall in both values and volume was the lack of €1 billion plus deals, with the biggest transaction being that of Bridgepoint Capital’s €636 million institutional buyout of 11 Spanish wind farms from ACS.

Charlie Johnstone, director at private equity firm ECI Partners, says the results point towards more than just the traditional summer lull.

He adds: ‘A lot of people have been spooked by the global sovereign debt crisis and are really concerned about the short to medium term outlook.’

Johnstone says that, speaking to M&A practitioners, he feels that the lack of confidence has led to a lot of deals not getting through during August, with many of them not likely to close until they come back to market.

Private equity deals as a percentage of total M&A value fell from 12 per cent to 8 per cent between July and August, with figures down 12 per cent over August 2010.

However, Johnstone is confident that there is still a lot of money out there with private equity firms, who raised funds five years ago and have already had one extension, now looking to get the money out the door and raise a new fund.

He adds: ‘I would describe most people’s individual pipelines as quite saw-toothed. You get a busy period as one or two deals get closed but there is then a period of having to rebuild your pipeline, there isn’t the depth to provide a long term flow of activity.’

The largest deal during August involving a UK target was the institutional buy-out of Guardian Assurance, Guardian Linked Life Assurance and Guardian Pensions Management by Cinven for €312 million.

The lack of big-ticket deals is a contributor to the fall in private equity deal values, says Johnstone, with those looking to secure debt for €1 billion plus deals finding it increasingly difficult.

‘Speaking to those in the debt sector they are saying that the banking community who are responsible for the higher end more distributed debt are really worried,’ he explains.

‘As they are much more affected by this sovereign debt crisis they are finding it almost impossible to distribute debt.’

Looking at potential growth markets, Johnstone believes that the technology M&A sector is ‘moving to its own beat’ at the moment.

ECI recently secured the acquisition of Wireless Logic from Dragons’ Den entrepreneur Peter Jones for £38 million, a deal that Johnstone believes demonstrates the strength of the sector.

‘The fact that Peter Jones was disposing of Wireless Logic to build up some acquisition funds, rather than just realising the value of the asset, suggests there are attractive targets out there,’ he explains.

David Silver, managing partner at Baird, says that despite the drop-off trade buyers remain very active and aggressive. However he believes that recent market uncertainties have not helped confidence levels as parties took a pause for breath a few weeks ago.

Silver adds: ‘Private equity firms remain keen to deploy capital but are struggling to compete on processes where trade is an aggressive and/or they have not been tracking the asset for some time.

‘Having said that bilateral negotiations are at a peak, we have seen a good number of one-on-one discussions succeed whereas in previous years parties would have been less patient in allowing negotiations to develop over time.’

Todd Cardy

Todd Cardy

Todd was Editor of GrowthBusiness.co.uk between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital. Connect with...

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