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Private equity plummets as bank lending freezes, research finds

Private equity investment in buy-outs in the first half of the year reached a disappointing GBP3.2bn, according to the latest data from the Centre for Management Buy-out Research.

Private equity investment in buy-outs in the first half of the year reached a disappointing GBP3.2bn, according to the latest data from the Centre for Management Buy-out Research.

This is down from GBP12.5bn in the same period last year and is the lowest half yearly figure since 1995.
 
On a quarterly basis the market fell to just GBP1.2bn in the second quarter of the year, down from GBP2.0bn in quarter one.
 
‘Today’s figures will come as a shock to no one,’ says 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 ten of these receiverships were private equity backed deals valued above GBP10m,’ says Marriott.
 
In terms of deals by value, there has been an across the board fall in both numbers and value. Deals below GBP10m reached just GBP206m by value and 126 in number. The lower mid market (GBP10-GBP100m) has been particularly weak with just 14 deals in H1 2009, whilst there have only been five deals above GBP100m 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 GBP1.3bn – 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 GBP325m, a company in receivership. Two of the five deals above GBP100m 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,’ says Marriott.
 
‘What is also interesting about the data and the market it reflects is that deals between GBP10-25m 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.’  
 
The Centre for Management Buy-out Research was founded at Nottingham University Business School in 1986 and has been sponsored by Barclays Private Equity since its establishment.

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