According to the latest figures from the Centre for Management Buyout Research, buyout values dropped by 36 per cent to £12.1bn (€14.6bn) in 2011, down from 2010’s total of £18.8bn.
The decline has been attributed to a sharp decrease in larger deals.
The report observes that apart from 2009, when only £4.8bn worth of buyouts took place following the financial downturn, the 2011 total value is the lowest since 1997, at £9.6bn.
Although the total value of private equity deals in 2011 decreased dramatically, the actual number of deals completed fell only slightly from 183 in 2010 to 176 in 2011.
Fortunately, the high levels of activity in the lower mid-market strengthened the industry in 2011. There were 81 buyouts in the £10m to £100m range with a combined value of £2.7bn, compared to 69 deals with a total value of £2.3bn in the previous year.
Compared to the general M&A market, private equity deals fared well as they accounted for nearly two-thirds (64 per cent) of the total value of M&A activity in the first three quarters of 2011.
On the exit side, the asset class was active throughout 2011 with a slight improvement on 2010’s figures. In 2011 there were 151 divestments compared with 142 in 2010. However, the total value of exits fell by 24 per cent, from £11.2bn in 2010 to £8.5bn in 2011.
Secondary deals remained dominant in 2011 with 57 deals recorded as opposed to 49 in 2010. The value of secondaries was £5.4bn, representing 45 per cent of the total market.
Surprisingly, considering the slowdown in the debt market towards the end of the year, more debt was used to finance deals in 2011, with a typical structure for deals over £50m containing 42 per cent debt, compared with 36 per cent in 2010 and 37 per cent in 2009.
“The UK buyout market hasn’t held up as well as some of its European neighbours in 2011, particularly France and Sweden, both of which saw increases from 2010 values. Deals have been taking longer to complete and for private equity firms financing has been difficult to obtain, impacting the volume of deals,” says Sachin Date, EMEIA private equity leader at Ernst & Young.
“However, while the market has been subdued, we must remember that total deal value in 2011 is more than double compared with the trough of 2009 and average deal size is 74 per cent higher than 2009. Looking forward, the pipeline of deals in the first half of 2012 is showing some signs of recovery with a few high-value deals pending completion suggesting there is still confidence in the industry,” concludes Date.
The report also revealed that London lost is dominance in 2011. The total value of deals that took place in the City fell to £4.6bn from £9.8bn in 2010. There were 36 transactions completed in the capital in 2011 compared with 45 in 2010.
Buyouts in the West Midlands increased by value by 35 per cent to £1.1bn in 2011 from £801m in 2010. Notable deals from the region include Phones4u in April and the divestments of Pattonair in July.
In the North East, the value of deals more than doubled from £83.4m to £280.8m, mainly because of the Aesica Pharmaceuticals buyout for £200m in November.
Deal flow in the North West was up by 44 per cent by volume, from 18 deals in 2010 to 26 in 2011.
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