Secondary buyouts (SBOs) helped to prop-up a deflated private equity market during 2012 as volumes and values hit an eight-year high, according to a report on global M&A trends.
Since 2007, SBOs have on average represented 20 per cent of all private equity deals by volume and 30 per cent by value, but in the second half of 2012 this rose to nearly 25 per cent and 40 per cent respectively.
The rise in SBOs has taken its toll on private equity exit multiples which were at their lowest for three years. This trend looks set to remain during 2013 as private equity firms continue to sell assets to peers, sacrificing exit multiples for liquidity. The industry shift is in part driven by a volatile IPO market and a generally cautious environment for trade buyers, offering a straightforward exit for private equity firms. Investment deadlines and a requirement to demonstrate a return to their limited partner investors is also impacting on the trend.
These are some of the top findings from a report published by valuation specialists American Appraisal, Global M&A Valuation Outlook 2013. The report, now in its second year, draws on in-depth analysis of American Appraisal’s own data from deals compiled from its 27-country network of operations in 2012 combined with industry data on international corporate deal-flow.
Mike Weaver, managing director at American Appraisal, says: “A scarcity of exit options available to private equity firms is the main contributor to an uptick in secondary buyouts. Lack of IPOs and trade buyer sales has forced private equity firms to turn to one another, the largest rise of its kind for the past eight years. Until their options widen, liquidity-chasing private equity firms look set to make secondary buyouts a trend that will continue during the course of this year and beyond.”
Other key findings from the Global M&A Valuation Outlook 2013 include:
· Asia-to-Europe EBITDA multiples jump to 9.9x in 2012 as China, Japan and India pay more for quality European assets. Meanwhile, inbound M&A to China drops 18 per cent.
· Increased write-downs owing to over-estimated economic forecasts are pushing down valuations but goodwill accounting remains high, indicating that companies are looking to minimise amortisation charges and bolster net earnings; this trend is expected to be mixed in 2013 depending on sector and region.
· Energy and mining company EBITDA multiples fell to 8.6x in 2012 while deal volumes reach five-year high. Impairment charges set to increase as demand for resources weakens.
· Technology multiples are down to 8.55x due to a lull in innovation as future products and ideas are still in the lab.
