Private equity houses continued to pursue buy and build strategies in 2008 with 362 follow-on acquisitions undertaken, down from the record 465 transactions in 2007, according to resear
Private equity houses continued to pursue buy and build strategies in 2008 with 362 follow-on acquisitions undertaken, down from the record 465 transactions in 2007, according to research by mid-market private equity firm Silverfleet Capital.
‘While the financial crisis has imposed many obstacles to financing private equity backed deals, it has driven home the critical need for private equity houses to identify and capture value in different ways.’ says Silverfleet Capital managing partner Neil MacDougall (pictured).
‘Buy and build is a core tool to create more robust, larger, growing companies thereby generating value for investors. Last year saw equity houses continuing to pursue these deals, including, in some cases, entirely through equity funding. Although, unsurprisingly, activity dropped in the fourth quarter following the insolvency of Lehman, 48 follow-on acquisitions were still completed.’
The research reveals a sizable shift in vintage with a greater portion of the follow-on acquisitions done in 2008 being completed by portfolio companies acquired between three and five years ago.
Silverfleet says this seems to reflect that: as the potential timing of portfolio company sales gets delayed (due to market conditions), opportunities are now being pursued that might otherwise have been passed over; and these older companies are likely to be less indebted (having potentially paid down debt over the past few years) and are able to continue to create value through add-on acquisitions.
With debt needed to help fund follow on deals, Silverfleet Capital sought the views of bankers at UBS, Lloyds, Barclays, Ares Capital and Bank of Scotland to see what they believe the next 12 months will hold for private equity buy and build strategies. The overwhelming response was that for high quality transactions, debt would be available.
MacDougall adds: ‘A successful buy and build strategy needs a vision, a management team you can trust, in an industry ripe for consolidation; fundamentals that have not been lost despite market conditions. This year more than ever will present some fantastic buying opportunities for private equity backed portfolio companies.’
The survey of buy and build activities of European private equity portfolio companies was carried out in conjunction with mergermarket.
