Private equity-backed M&A sets new record

The private equity industry accounted for 73% of UK M&A activity in the first half of the year, its highest proportion on record.

The private equity industry set a new precedent in the first half of 2010 by accounting for 73 percent of all merger and acquisition deals in the UK. The figure exceeds the 62 percent figure set in 2007, according to the Centre for Buy-out Management Research at Nottingham University, and is the highest proportion since CMBOR began tracking the data in 1985, a spokesperson confirmed.

The private equity industry has undergone a resurgence of activity in 2010 after the historic lows in deal levels in 2009. The total value of all UK buyout deals in the past nine months totalled £13 billion (€15 billion; $21 billion), more than double the £5.6 billion reported in all of 2009.

Recent deals include ECI Capital Partners £80 million acquisition of Manchester-based telecoms provider XLN telecoms from Zeus Private Equity; and Montagu Private Equity’s £222 million purchase of web-hosting company, Host Europe, from Oakley Capital.

Private equity firms are also experiencing declines in portfolio company insolvencies and more active exit markets, the research noted.

There is strong evidence of private equity firms being prepared to invest further capital into portfolio companies that are struggling.

Christiian Marriott

The first nine months of 2010 tallied only 84 insolvencies compared with 163 in the whole of 2009.

“There is strong evidence of private equity firms being prepared to invest further capital into portfolio companies that are struggling,” said Christiian Marriott, director at Barclays Private Equity, a co-sponsor of the research, adding this is “undoubtedly helping to keep the number of buyout insolvencies at a low level compared to 2009 and also points to an upturn in portfolio performance”.

Exit market activity also showed greater strength compared to 2009 figures. The first nine months of 2010 experienced £7.6 billion-worth of divestments compared to £2.3 billion during the whole of 2009.

“It is encouraging to see the exit market opening up, not just from financial buyers but with an increased appetite from trade buyers, which has driven several larger realisations,” added Marriott.

The boost in exit activity is being largely driven by trade sales and secondary buyouts, “a trend which is very likely to continue into Q4”, added Sachin Date, markets partner for EMEA at Ernst & Young.

The research revealed secondary buyouts accounted for nearly half (44 percent) of total buyout activity, with firms trading £5.5 billion-worth of investments in the first nine months of 2010. In 2009 secondary buyouts accounted for just 20 percent of activity, with £995 million-worth reported. 

Research also discovered deal pricing inching closer to 2008 levels. The average EBIT multiples for buyouts over £100 million increased to 16.4x in the first nine months of 2010, compared to 12.7x in 2009 and 17.6x in 2008.

CMBOR was founded at Nottingham University Business School in 1986 and has been sponsored by Barclays Private Equity since its inception.