UK: Recent UK Buy-Out Activity Reflects Weight Of Private Equity Money

Last Updated: 7 April 2000

Key highlights of the latest research into UK larger management buy-outs published by KPMG Corporate Finance, looking at the first quarter of 2000, reveal that:

  • The average value of larger UK management buy-outs has risen by 25% in the first quarter of 2000, compared to the average value of UK larger MBOs in 1999
  • The level of public to private (PTP) activity has increased in the first quarter of 2000 by 67%, compared to the final quarter of 1999. However, the average value of PTP transactions has fallen by 23%
  • The flow of money into private equity-backed deals in the £100m plus range has increased in Q1 2000 compared to average quarterly figures in 1999 with four transactions in Q1 2000 in excess of £250m (refer to Notes to Editors)

Average Deal Value Increases

The number of MBOs, management buy-ins (MBIs) and institutional buy-outs (IBOs) has decreased by 23% in the first quarter of 2000 compared to average quarterly figures in 1999, according to the latest research published by KPMG Corporate Finance. The number of transactions has fallen to 30 in Q1 2000 from an average of 37 transactions per quarter in 1999.

The average value of larger MBOs, however, has increased in Q1 2000 to £116m from an average value of £93m in 1999. This also marks a significant rise in comparison to average deal value in 1997 and 1998: an increase of 97% from 1997, where the average deal value was £59m; and 49% from 1998, where average deal value was £78m.

Increased Allocation to £100m+ Deals

The KPMG Corporate Finance research reveals that the flow of money into deals in excess of £100m has increased in Q1 2000 by 20% in the £100-200m range and by 8% in the £250m+ range compared to average quarterly figures in 1999.

The flow of money into deals between £10-100m, however, has decreased in Q1 2000 compared to average quarterly figures in 1999. The total value of deals in the £10-25m decreased by 36% from an average quarterly figure of £218m in 1999 to £140m in Q1 2000; by 27% in the £25-50m range from £260m in 1999 to £190m in Q1 2000; and by 29% in the £50-100m range from £465m in 1999 to £330m in Q1 2000.

Increase in Level of PTP Activity

The level of PTP transactions has increased from six in Q4 in 1999 to 10 in Q1 2000. However, the average value of PTP transactions has decreased from £149m in Q4 1999 to £121m in Q1 2000. This also marks a decline in the value of PTP transactions by 39% from £121m in Q1 2000 compared to the average quarterly value of £159.5m in 1999.

Charles Milner, UK Head of Private Equity at KPMG Corporate Finance, said:

"We believe one of the principal factors fuelling the increase in the value of larger buy-outs in the first quarter of this year is the continuing weight of private equity money chasing deals. We estimate that over £13 billion of private equity funds were raised in 1999 targeted at Europe. We are not seeing crazy prices being paid, although where value is identified or where an investment fits strategically with other portfolio companies, the private equity firms will go the distance on pricing.

"The weight of private equity money is also prompting the continuing wave of secondary buy-outs, with the Target Express transaction, on which KPMG Corporate Finance advised 3i, being one of the largest.

"The UK smaller quoted company sector continues to be unloved. Whilst the average value of PTP transactions has fallen in the first quarter, the number has increased, as well as the premiums being paid to secure the deal. Every board in this sector must be reviewing this option and we believe that the volume of PTP transactions will continue this year.

"The trend towards fewer deals being done at the lower value level may well reflect a diversion of focus by private equity houses on new economy investment opportunities. However, this should provide opportunities for old economy management teams, in particular given the number of undervalued opportunities which are currently emerging."

For further information, speak to your usual KPMG tax contact.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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