UK: European MBO Market Continues To Be Led By The UK

Last Updated: 18 July 2000

UK average values increase, but underlying number of deals decline

European research published today by KPMG Corporate Finance, demonstrates that the UK still leads Europe in the £10m plus management buy-out (MBO), management buy-in (MBI) and institutional buy-out (IBO) bracket, with 68 such deals completed in the period January to June 2000 totalling £10,980m (average of £161m). The nearest competitor was France with seven deals totalling £997m (average of £142m).

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

"The results of our research are not surprising, but it does demonstrate the huge potential in Europe. With the high level of European funds being raised, and with many private equity firms beefing up their own, on-the-ground presence in key locations, the level of activity in Europe is set to grow significantly.

"Average value has dramatically increased from last year with the six monthly total being more than 66% higher than the full year 1999 figures. This reflects a number of larger transactions including the £3.5bn public to private deal involving MEPC in the UK and the Fiat Lubricants deal in Italy (£264m). However, the underlying volume has clearly come off from last year's higher activity levels."

The research also looked at quarterly trends in UK buy-out activity and revealed:

  • the flow of money into private equity-backed deals in the £250m plus range for the first half of 2000 has already exceeded total value of deals in the £250m+ range for the whole of 1999 (£7.7 billion compared to £7 billion in 1999).
  • the volume for the first half of 2000 (68 deals), although below the activity levels in the second half of 1999 (85 deals), is marginally ahead of the comparable figure for 1999 (64 deals).
  • the value of larger UK buyout activity has risen by 104% to £7.4bn in Q2 compared to £3.6bn in Q1 with the average value showing a similar trend, rising 72% in Q2 to £199m from £116m in Q1. However, these figures are impacted by the United Biscuits (£1.5bn) and MEPC (£3.56) deals.

"The figures need to be considered in light of the £3.5 billion PTP of MEPC. If this deal is excluded, the average value for the quarter actually shows a decrease from Q1 of 9% from £116 to £105m" Milner said. "However, we expect to see increasing levels of completions over the next six months as the number of players actively involved in private equity rises and in view of the substantial quantities of funds being raised."

Public to Private (PTP)

  • The level of UK PTP activity has slowed with only seven transactions in Q2 2000, compared to 11 in Q1. Figures also show little increase in the number of PTP transactions undertaken during the first half of 2000 (18) compared to the same period last year (17).
  • The total value of PTP deals however, has increased by 334% to £5.8bn in Q2 compared to the first quarter, where the total value of deals reached £1.3bn (an increase of 74% to £2.3bn if the MEPC deal is excluded). Total value of deals increased 206% to £7.2bn in first half of 2000 compared to £2.3bn in same period last year (57% increase if MEPC deal excluded).
  • The average value of PTP deals in Q2 has increased by 583% to £833m compared to £122m in Q1 (an increase of 174% to £335 million if the MEPC deal is excluded).

Milner said "Public to private transactions continue to be a feature of the market, as the lack of appetite amongst the institutional investors for smaller to medium capitalised companies continues, particularly for the so-called 'old economy' players.

"The scale of PTP transactions have also been gaining in size, United Biscuits being a £1.5 billion transaction in addition to the PTP of MEPC at £3.5 billion. It is reasonable to suppose, that there will be more large PTP transactions in the second half of the year as the number of companies dissatisfied with their stock market listing, or trading at large discounts to net assets, increases.

"In addition, there are now a growing number of private equity houses, banks and their advisors who are familiar with these complex transactions which will give a further push to this type of deal."

For further information, or assistance, please 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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