Secondary buyouts dominate UK market

The overall value of UK buyouts* has increased dramatically in Q1 2010 reaching over £5bn (Q4 2009: £1.1bn) compared to only £5.6bn for the whole of 2009 according to the latest data published by the Centre for Management Buyout Research (CMBOR) and sponsored by Barclays Private Equity.

Q1 2010 has recorded the highest overall value of UK buyouts since Q3 2008 (£5.9bn), following the Lehman crash in September 2008. This compares to the highest quarter ever recorded in Q2 2007 of £20.4bn.

Highlights

• The total value of private equity-backed UK buyouts in Q1 2010 has already exceeded the amount recorded in the whole of 2009 - £5bn in Q1 2010 compared to £4.7bn in 2009. By volume, there has been a 72% rise in UK buyout activity in Q1 2010 compared to the previous quarter with 43 buyouts and 25 in Q4 2009.
  
  
• The overall quarterly value of UK buyouts has not been as high as £5bn since Q1 2008 when over £7bn of buyouts was recorded.
  
  
• 73% of all UK buyouts by value in Q1 2010 were secondary transactions. £3.7bn of secondary buyouts were recorded in Q1 2010 (Q4 2009: £16m), the highest quarterly value since Q3 2007 (£6.9bn) and compared to only £955m for the whole of 2009, during which secondary buyouts constituted only 20% of UK buyout activity. Eight of the 12 buyouts recorded over £100m in Q1 2010 were secondary transactions.
  
  
• There have already been four tertiary deals in Q1 2010 compared to only two in the whole of 2009 and six in 2008. Apax’s buyout of Marken is the largest tertiary deal this quarter.
  
  
• The value of public to private (PTP) buyouts in Q1 2010 fell significantly to £62m from £477m in Q4 2009 (and £1.3bn in the same period in 2009) although the volume of PTPs remained level at four for both quarters. In Q1 2010, PTPs only represented 1.2% of the total value of UK buyouts, compared to 39% in 2009 overall.

* The figures provided in the first two paragraphs above the ‘highlights’ section refer to all UK buyouts (including those without a private equity sponsor). All remaining figures in the release relate only to private equity transactions.

Christiian Marriott, a Director of Barclays Private Equity, commented:

“It is encouraging to see a healthy recovery in the UK buyout market at the start of the year. After a slow 2009, UK buyout firms will be pleased to be getting back to business across the deal spectrum. This undoubtedly signals a renewed appetite amongst private equity firms to invest, driven by improved lending by the banks for new deals and clearer earnings visibility.

“We have historically seen an increase in the volume of secondary, and tertiary, transactions when the economy has been more buoyant in 2006/7. Private equity firms have significant amounts of capital to deploy and it would be no surprise if we continue to see an active secondary and tertiary market.

“The strong start to the year, however, may not necessarily signal a sustained resurgence in the UK buyout market, rather a more gradual recovery over the next few years as confidence returns to the market.”

Average deal size increases

• Average deal size increased sharply in Q1 2010 to £116.7m from £39.5m in 2009. This was due predominantly to a number of large secondary buyouts including KKR’s acquisition of Pets at Home and Apax’s buyout of Marken.
  
  
• There were two buyouts over £500m in Q1 2010 (Pets at Home and Marken) – compared to two in the whole of 2009 - which accounted for 40% (£1.9bn) of the overall value of buyouts in the quarter. There were 10 buyouts in the upper-mid market range (£100m- £500m) in the quarter totaling £2.5bn, comprising half of the overall value of buyouts in the period.
  
  
• By overall value, buyouts in the lower mid-market (£10m to £100m) more than tripled to £493m in Q1 2010 from £159m in Q4 2009. The value of smaller buyouts (less than £10m), however, only accounted for 0.8% of the overall value.

Exit market improves

• The volume of exits rose by 39% in Q1 2010 with 43 exits up from 31 in Q4 2009. A continuation in current exit levels would see a rise in the number of exits for 2010 overall from 109 in 2009 to an estimated 172. The volume of exits in previous years peaked in 2007 with 265 deals.
  
  
• By volume, most exits occurred through trade sale and secondary transactions, with 15 and 13 deals respectively in Q1 2010.
  
  
• There have been no private equity-backed IPOs recorded in the first quarter of 2010 and only one in 2009 – Gartmore. Prior to this, the last recorded private equity-backed IPO was in 2007.

Business services sector sees highest overall deal value

• The business and support services sector recorded the highest overall value of buyouts in Q1 2010 totaling £1.5bn, although largely as a result of the acquisition of Marken. By volume, the business and support services sector also demonstrated the highest level of buyout activity with 14 buyouts in Q1 2010, followed by the manufacturing sector with 10 buyouts.
  
  
• By value, the TMT sector showed the greatest decline in buyout activity from £1.5bn in 2009 to just £110m in Q1 2010.
  
  
• After secondary buyouts, family and private owners was the second largest source, by value and volume, with a combined total of £902m and representing 18% of the UK market by value.