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Add-on acquisitions down 50 per cent in 2009

European private equity houses who wanted to create value in their portfolio through add-on acquisitions in 2009 saw their efforts mostly thwarted, according to an annual study by European private equity house Silverfleet Capital.

Silverfleet Capital’s European Buy & Build Monitor, published in conjunction with mergermarket, found that the number of European add-on acquisitions fell dramatically in 2009 by almost 50 per cent to 203, the fewest since 2004. 

Total value dropped too to a shade over GBP3bn, well down on the GBP23.4bn recorded in 2007 and the lowest since 2003. 

While these numbers reflect the fall in M&A activity generally, the data also shows that add-on activity as a proportion of total M&A also fell. 

Neil MacDougall, managing partner at Silverfleet Capital, says: “Companies that should have been in a position to make acquisitions faced several hurdles including a lack of quality assets, a lack of financing for acquisitions and vendors who had not adjusted their valuation expectations which remained too high.  Also those portfolio companies saddled with high leverage and an uncertain future have given many management teams little leeway to consider acquisitions.”

Despite the frustrations of the last year, many businesses are now starting to see improvements in the market. As the economy has stabilised, visibility on company performance has improved.

MacDougall says buy and build is a key strategy for value creation. 

“Even in 2010, private equity firms are having to pay full prices for platform companies and the lower entry multiples of add-ons and the synergies they bring will be essential to achieving an acceptable IRR for investors. We therefore expect that as the M&A market picks up and the banks gain in willingness to support strong businesses, the proportion of add-on acquisitions will recover in 2010-2011,” he says.

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