Overseas trade buyers boosting private equity buyouts

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PRIVATE Equity buyout activity in the UK is showing renewed signs of resilience, buoyed by overseas trade buyers keen to gain a foothold in Europe without exposing themselves to Eurozone volatility, a new report concludes.

However, dealmaking in the West Midlands seems flat by comparison with other areas – although analysts have said it would be wrong to read too much into this.

According to the latest data from the Centre for Management Buyout Research (CMBOR) and sponsored by Ernst & Young and Equistone Partners Europe, for the UK as a whole the value of private equity exits via trade sales over the first three quarters of 2012 reached £7bn, its highest total since 2007, with a high proportion of acquirers coming from US (11) and Japan (3).

The data reveals that the value of UK buyouts in the first three quarters of 2012 reached £11.7bn, close to last year’s overall total of £12.6bn, and the number of deals recorded hit 144, compared to 187 for the whole of 2011.

In the West Midlands there were three management buy-outs in Q3 of this year compared to five in Q2 and six in the same period of 2011 with overall volumes ahead of 2010 but running behind those in 2011.

Mark Stanway, Corporate Finance director for Ernst & Young in Birmingham, said: “Whilst the overall economic outlook remains challenging, overall UK buyout activity is holding up well with both the value and number of deals over the last three quarters nearing the total over the same period in 2011. It is encouraging to see that values are being boosted, not only by one off mega deals, but a healthy spread of transactions across the value range.

“Although we have seen fewer West Midlands buy-outs this year than we had at the same stage in 2011, the overall level of activity in core mid-market deals of £10m-£100m has been positive albeit slowing in Q3 relative to earlier quarters.

“There has been a marked increase in the number and value of exits by trade sales this quarter. What we are seeing is a trend towards overseas buyers, which are keen to establish a foothold in Europe, acquiring UK assets to mitigate the risks and volatility currently associated with directly investing in the Eurozone.”

Paul Harper, Investment Director at the Birmingham office of Equistone Partners Europe, said activity levels in the buyout were increasing but it was too early to talk about recovery.

“Deal-making in the Midlands is static at best but I would not read too much into the decline in the number of deals in the West Midlands,” he said.

“There is better activity in the pipeline than we have known for some time, and we would hope that a number of these opportunities work their way through during the last quarter of the year and in the first half of 2013. That, coupled with the availability of finance for transactions, means that we should see an increase in activity although Eurozone worries and other macro-economic uncertainty make the environment less certain and as a result it is tricky to make any concrete predictions.”

In the UK as a whole smaller deals in the £10-100m range continue to do well, with both the number and value of deals achieving higher numbers over the first three quarters of this year when compared to the same period in 2011. The total number of deals so far this year comes to 70 versus 66 in 2011, with values reaching £2.2bn and £2.4bn respectively.

There have been three deals during the first three quarters of this year above the £1bn mark, with values totalling £3.8bn, compared to only one in the whole of 2011 achieving a value of £1bn. The last time there were three £1bn plus deals recorded in one year was 2008, according to the data.

While activity has positive signs of improvement during Q3, the pending deals for the UK feeding in to the final quarter of this year appear lighter in both quantity and value, the report concludes.

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