The UK’s Private Equity (PE) buyout market has seen a drop in both volume and value of deals at the half way point of 2013, but exit values have increased significantly boosted by the revival of PE-backed IPOs as an exit route for the industry.
There were 81 UK buyouts over the first six months of this year with a total value of GBP6.0bn, compared to 117 and GBP8.6bn over the same period in 2012. Encouragingly the value of exits totalled GBP8bn at the half way point of this year, an increase from GBP5.8bn in 2012, according to the latest data published by the Centre for Management Buyout Research (CMBOR) at Imperial College sponsored by Ernst & Young and Equistone Partners Europe.
Sachin Date, Private Equity leader for Europe, Middle East, India and Africa (EMEIA) at Ernst & Young comments, “These low levels of buyout activity are not reflective of what we are seeing in the market place in terms of the pipeline and deals in progress.
“The fundamentals for a healthy deal market are in place. Confidence is increasing, there is an appetite for deals and the debt market is buoyant, but despite these positive signs the market is still challenging and deals are taking longer to complete.”
Christiian Marriott, Investor Relations Partner at Equistone Partners Europe Limited, says: “It has been encouraging to see private equity backed companies accessing the IPO market in the last six months, providing a welcome boost to exit values. Following the examples of Countrywide and Esure, we are now seeing a strong pipeline of firms looking to exit in this way. But there is cause for caution in the outlook for the rest of the year, as equity market volatility may well make timing a key success factor.” 

An emerging trend over the last six months has been the number and value of buyouts involving acquirers from North America (US and Canada), with 12 of the 17 GBP100m or more deals originating from the region. These deals alone have equated to GBP4bn.
Date says: “The relative safety that Sterling offers in light of Eurozone volatility has made UK PE assets extremely attractive to North American investors. The significant number of acquirers from this region highlights the attractiveness of the UK as a footprint into Europe without exposing investors to the current risks associated with the Eurozone.”
The CMBOR research reveals that IPOs are back on the menu, with four PE-backed IPOs during the first half of this year – three during Q1 and a single flotation during Q2 – raising a total of GBP3.9bn. The largest exit in 2013 is Partnership Assurance which floated in June with a market capitalisation of over GBP1.5bn.
Date says: “It has been encouraging to see capital markets open up and these recent flotations have traded successfully which has helped build confidence amongst investors that PE-backed IPOs are again an attractive proposition.
“We should see more IPO activity over the coming months with good PE assets coming to market, unless of course macro economic conditions change dramatically and make investors more cautious.”
PE houses have taken advantage of the readily available debt and have undertaken a record number of refinancing transactions for the first six months of any year since records began. There have been 25 refinancings so far in 2013 reaching GBP7.6bn, compared to 20 and GBP3.4bn over the same period last year.
Date says: “We have seen a significant increase in the number of refinancing transactions. The portable provision in these debt packages will make it easier to exit these investments in the near term.
“Another positive sign for European PE companies, who typically rely more on bank financing, is that the volatility seen in the bond market is not coming through in the banking markets where conditions remain stable.”
Mid market deals in the GBP100 – GBP500m space have held up relatively well with 15 deals over GBP100m completing this year. The greatest decline in the UK has been the number and value of deals in the GBP50 – GBP100m deal range. Over the same period last year there were 13 deals equating to GBP930m, compared to six and GBP422m over the first half of this year.
Date says: “When we look at the types of businesses that operate in this value bracket we can see why there are less deals. Typically, these businesses are less diversified, operating in a single market with single products and services offerings. Investors today are on the hunt for multi-sector, multi-product and multi jurisdiction assets which are able to spread their exposure to fluctuating macro economic conditions.”
Looking forward to the remainder of this year, Date says: “Although values and volumes of deals are down, all the indications point to a healthy pipeline, and while we might not reach the record levels previously achieved there should be a positive number of deals completed. There are plenty of attractive assets out there and we will continue to see some prime assets come to market over the coming months.”
