Private equity investment in buy-outs in the first half of the year reached a disappointing £3.2 billion according to the latest data from the Centre for Management Buy-out Research (CMBOR).  This is down from £12.5 billion in the same period last year and is the lowest half yearly figure since 1995.

CMBOR, the UK’s leading provider of data and analysis on private equity also revealed that on a quarterly basis the market fell to just £1.2 billion in the second quarter of the year, down from £2.0 billion in quarter one.  (This second quarter figure includes the recently finalised Wood Mackenzie SBO at £553m.)

“Today’s figures will come as a shock to no one” commented Christiian Marriott, director at Barclays Private Equity.  “We have previously predicted that the market will settle at a new, much lower level, and the quarter two figures reflect this.”

Analysis of exited deals shows that the most common exit route this year has been into receivership. There were 74 receiverships in the first half of the year, compared to 25 trade sales and nine secondary buy-outs.  There has now been no exit via stock market flotation of a buy-out for two years.

“Although the number of receiverships continues to creep upwards, the majority are not private equity backed and tend to be at the lower end of the market.  In the first half of the year just 10 of these receiverships were private equity backed deals valued above £10 million”, said Marriott.

In terms of deals by value, there has been an across the board fall in both numbers and value. Deals below £10 million reached just £206 million by value and 126 in number.  The lower mid market (£10-£100m) has been particularly weak with just 14 deals in H1 2009, whilst there have only been 5 deals above £100m after 39 in 2008 and 67 in 2007.

The largest deal of the year so far is the buy-out of NDS Group which accounts for £1.3 billion – almost half of all deals by value.  The largest buy-out in Q2 2009 was the Wood Mackenzie secondary buy-out followed by Chesapeake at £325m, a company in receivership.  In fact two of the five deals above £100 million in the first half of the year, have come from parent companies in receivership.

“What is clear is that market recovery will not happen over night. We need to see a number of factors converge before deal numbers begin to climb, including earnings visibility and an increase in bank debt availability.

“What is also interesting about the data and the market it reflects is that deals between £10-25m have seen the heaviest decline. It is safe to assume that over the next 12 months receiverships are likely to be higher than in 2008 and that assets will be retained. Valuations are still high and the dearth of available finance will depress deal flow. An additional problem could start to arise as early as next year as large scale LBOs have to start to renegotiate their debt as it reaches the end of its term.”

2009 half year highlights:

• Buy-outs over £10 million total only 19 for the first half year, compared to a record total of 263 in 2007 and 176 in 2008
  
  
• Family and private buy-out volume has fallen to a quarter of all deals after rising steadily over the last 5 years, reaching 42 per cent at the end of 2008
  
  
• In 2009 PTP activity started well with 5 de-listings valued at £1.4 billion in Q1 but there has been only one delisting in Q2 2009
  
  
• A new record exit value was set in 2006 at £26.9 billion followed by £23.9 billion in 2007. In 2008 exit value ended the year at just £9.9 billion but only £960 million has been recorded so far this year
  
  
• The Retail and Financial Services sectors are the only ones holding up with respect to the number of deals completed, albeit values are well down