The total value of smaller private equity buyouts completed during 2010 rose to over GBP2.5billion, a 150 per cent increase on 2009 levels, according to data from The UK Growth Buyout Dashboard.
The quarterly trend analysis of private equity transactions in the GBP10 million to GBP100 million segment produced by Lyceum Capital and Cass Business School shows 68 companies raised an estimated GBP2,504million of buyout funding in 2010. This compares with 34 transactions and GBP1,045million of funding during the previous 12 months.
The report’s authors say the figures provide further evidence that increasing numbers of successful SMEs are seeking private equity investors’ capital and expertise to drive their post-recession expansion plans.
Although still significantly behind peak levels seen in the previous decade, the 68 deals completed in 2010 was double the volume seen in 2009 .
Whilst transactions in the GBP10-50million value range continue to make up the majority of mid-market activity (2010: 79.4 per cent of total deals; 2009: 85.3 per cent), the number of deals with a value of between GBP50-100million nearly trebled in 2010.
This trend saw the average deal value rise to GBP36.8million, up from GBP30.7million for the previous 12 months.
The dominance of management buyouts (MBOs) as a transaction type continued in 2010 accounting for nearly three quarters of all activity (50 of the 68 deals), highlighting that private equity remains a key source of growth capital for business owners and entrepreneurs.
The number of public to private deals fell from five in 2009 to just three in 2010, suggesting that despite the apparently depressed valuations of listed firms, latent appetite from the private equity industry did not create the surge of de-listings many commentators had anticipated at the beginning of the year.
Companies operating in the business support services and retail and consumer industries continue to attract the majority of private investment with the two sectors accounting for nearly half (41.2 per cent) of total investment during 2010.
Investment in both the healthcare and education/human capital management industries also picked up significantly in 2010, with six companies in each sector attracting investment compared to none the year before.
Other trends identified include the number of deals involving technology, media, telecommunications (TMT) businesses nearly trebling from four in 2009 to 11 in 2010.
As widely predicted, 2010 saw strong growth in the number of exits from private equity investments as shareholders looked to realise the value of assets for their investors.
The total number and value of exits increased significantly from 17 deals worth GBP499million in 2009 to 42 worth GBP1,720million in 2010.
Trade dominated the buyer pool in 2010, acquiring 29 businesses (2009: 13), accounting for 69 per cent of all exits.
The number of exits funded by IPOs remained depressed with just one offering completing throughout the whole of both 2009 and 2010.
The balance of exits (2010: 12; 2009: 4) were to secondary buyouts with new investors backing management teams to continue to deliver strong performance.
“Despite economic and political uncertainty and a sluggish debt market, smaller buyout volumes bounced back strongly in 2010 proving the resilience of this segment of the economy," says Andrew Aylwin, Partner at Lyceum Capital. "Looking forward into the New Year, dealflow will increase further supported by strong demand for high quality assets.
“The long-term investment outlook is positive. There is a bed-rock of SMEs requiring capital to consolidate their performance and complete the transformation into more mature, high-growth enterprises. This growth will ensure the lower mid-market continues to be a highly attractive asset class for private equity investment that is capable of creating consistently strong returns for investors.”
