UK: A Market In Decline?

Last Updated: 18 January 2001
Article by Ian Gilbert

The economy is generally regarded as being in a pretty healthy state with a combination of steady growth and a low rate of inflation. Interest rates remain relatively low and are forecast, in the long term, to fall. The dot.com phenomenon has significantly depressed valuations of the companies in what is now deprecatingly called ‘the old economy’. Banks and venture capital companies are flush with cash and are apparently keen to invest. The only blot on the landscape (ignoring recent concerns about the effect of the Chancellor's spending plans) is the high pound. Therefore, management teams of strongly performing ‘old economy’ businesses could understandably believe that now is as good a time to do an MBO or MBI as there has ever been.

However, looking at recent statistics for MBO/MBI activity, the indicators suggest, rather surprisingly, that overall it is not such a good time. In 1999, only 31 MBO/MBI transactions in Yorkshire and Humberside were recorded by the Centre for Management Buyout Research compared with 66 in 1998. Although the figures for the first quarter of this year suggest record levels of activity, with 13 deals - valued at £528 million - being completed, closer inspection suggests something different. In the first quarter of this year three large public to privates (Waddingtons, Evans and Allied Textiles) were announced. Remove these from the statistics and the picture appears far less rosy.

Although the national trend for MBO/MBI activity in UK regions has generally been downwards, it is notable that the decline in Yorkshire and Humberside has been more pronounced. Some commentators seeking to identify a specific reason for this decline have attributed the fall to the departure of a number of leading deal-makers from the Leeds business community. Whilst, undoubtedly, Leeds have in recent years lost a number of talented individuals who could act as a catalyst to a deal, I think this view is overly simplistic in approach. What this view fails to recognise is, that in a relatively short space of time, the MBO/MBI market place has, and is continuing to, experience some significant structural changes.

The nature and level of activity on the Stock Exchange will always ultimately influence the MBO/MBI market place. The continuing lack of appetite amongst institutional investors in smaller to medium sized companies, particularly in the ‘old economy’ has largely removed a listing as an exit opportunity for a private equity house. This makes private equity investors more focused on the opportunities for and the likelihood of a trade sale and, by implication, more selective in the type of MBO/MBI that they are prepared to invest in.

The flight to the FTSE 100 has not been all bad news for the MBO/MBI market place as it has opened up public to privates. However, these transactions are by nature more complex and, as a number of institutions and professionals have found to their cost, considerably harder to complete. The public to private market is, however, finite and this means that the more obvious candidates have already had the rule run over them by a number of private equity houses. The limited market, coupled with the costs and the risks associated with such transactions, seems to dictate that private equity houses are likely either to gradually drift upmarket in terms of the value of the transactions they will pursue or seek the one off opportunities in sectors where they have specific expertise. A number of public to privates have, in addition, been able to exit the market on the back of debt simply because sentiment has swung so much against them.

Finally, the influence of the headlong pursuit of dot.coms and technology stocks over the last six to nine months with the perceived dramatic growth opportunities has also cast a shadow over traditional businesses. Investors are guided by sentiment and, if the institutions on the Stock Exchanges are turned off traditional businesses, this inevitably affects the willingness of private equity houses to invest in such businesses.

The enthusiasm of private equity houses for MBO/MBIs in the £10-£30 million bracket has been waning for sometime. As a consequence of this trend and the pursuit of dot.coms and high technology stocks the traditional regional market place has become like the Marie Celeste. It is therefore not surprising that we have experienced a fall in the level of activity.

You might in the past have seen the deal makers reversing this trend but even their position in the market place has changed. The major accountancy firms and those law firms that have gone ‘national’ are no longer as wedded to the performance of their region as once they were. With national reporting lines and responsibilities there is less interaction with their fellow ‘regional’ partners and as a consequence less cross-pollination of ideas and opportunities. In a buoyant corporate finance market where M&A activity has been strong, there is probably also less activity and, possibly, enthusiasm, within the professional community to invest time in creating deals.

The combination of a lack of investor interest and a lack of enthusiasm on the part of the professional community is a serious impediment for the market.

In the absence of specific encouragement, the MBO/MBI market is far more dependent on managers spotting the opportunity and being determined and ambitious enough to pursue that opportunity. However, we are also finding that there is far greater market concentration occurring in a wide range of sectors through the process euphemistically entitled ‘globalisation’. This has to an extent affected managers' confidence in their ability to go it alone, particularly with significant debt on board. This market concentration is also being fuelled by the e-commerce revolution which, despite its faltering steps at present, has resulted in almost every business questioning its ‘modus operandi’ and looking to the future with a degree of uncertainty. If you are an ambitious management team then in the current environment a well financed start up without historic baggage can be seen as an attractive opportunity.

So is the MBO/MBI market in terminal decline? Probably not, but what we are experiencing is a market reaching maturity.

MBOs and MBIs are no longer the only game in town for private equity houses, managers or professionals. There is now greater diversification in the corporate finance market place than there has perhaps been for 20 years and although MBOs and MBIs, whether in the form of public to private or private companies being sold, will continue to represent a significant market place I doubt it will ever be the dominant place that it was in the 1990s.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.