Recovery triggers pick up in activity for West’s buyout market

March 31, 2014
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Buyout activity in the South West is growing at a “steady rate” with five deals worth £25m completed so far this year and a healthy pipeline waiting for completion, according to new research.

The figures, published by the Centre for Management Buyout Research (CMBOR), show growth in completions across the UK as the market recovery begins to take hold.

The research, sponsored by EY and Equistone Partners Europe, shows the largest private equity buyout this year in the South West was the £10m sale of Gloucestershire-based Watkins Hire to Baird Capital Partners, closely followed by the £8m sale of Chippenham-based Woods Group with funding from Santander.

Corporate finance partner for EY in Bristol, Richard Jones, said: “The figures show a steady rate of growth andiwth growing confidence in the economy, we expect to see a pick-up in activity throughout 2014 as private equity continues to support growth in South West businesses.”

The popularity of the public markets as a preferred exit route continued in the first quarter of this year; with five IPOs achieving a total exit value of £5 billion – the highest number of IPOs for this quarter since 2006. The IPO value, at £2.5 billion, is also the second highest on record after £5.2 billion in Q4 2013.

This continues from where 2013 left off, with a total £23.4bn raised through 10 IPOs. Of the total number of IPOs this year across Europe, five out of the seven listed in the UK, showing the strength and attractiveness of the UK public markets.

With the industry working hard to clear its exit overhang, the opening of public markets has helped oil the wheels of this process, but the downside for PE is that this is having a material impact on the secondary buyout market (SBO). In the UK, both SBO volumes and values remain low at £782 million this year, compared to £4.7 billion in 2013. The largest exit in Q1 this year was from Pets at Home at £1.2 billion.

Mr Jones added: “While the opening of the public markets is helping the industry reduce its exit overhang, the increasing popularity of IPOs as an exit route is increasing competition for PE-backed assets. PE houses looking to acquire assets through SBOs are facing stiff competition from the high multiples being commanded by IPO valuations. This is having a significant impact on SBO activity and as a result both SBO volumes and values are down quite considerably.

“It is likely that the second quarter will see much of the same type of activity experienced in this quarter. Sell side activity will continue to dominate with IPOs being the preferred exit route. This does present a challenge however for some investors who, while reaping the benefits of distribution, are facing the challenge of where to reinvest capital so they can put their money to work.

“It is also encouraging to see a healthy deal pipeline with a number of deals likely to complete over the next three months. Whether this upsurge in activity over the coming months contributes to the European PE industry being back in full recovery mode remains to be seen, but the signs are certainly positive.”

By deal volume, London and the South East took the top spot – completing 17 deals so far this year – followed by the South West, North West and Scotland, all with five deals each.

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