All the Facts and Figures on the Ins and Outs; Professor Mike Wright and Rod Ball, Centre for Management Buyout Research
Byline: Mike Wright ; Rod, Ball
Professor Mike Wright and Rod Ball, Centre for Management Buyout Research CMBOR, which celebrates its 25th anniversary this year, was established as the first buyout wave accelerated from recession based job-saving deals to more strategic divestment transactions. Deals were primarily management buyouts (MBOs) where incumbent managers acquire ownership of a firm. Management Buy-ins (MBIs) subsequently emerged where a new external management team acquired ownership. In both, management invest own funds to acquire significant ownership, with other funding provided by a private equity firm alongside borrowings.
The later advent of much larger deals saw private equity firms leading the transaction and taking majority equity stakes.
The 1990s began with the buyout market in recession, but emerging from recession the market rose continuously through the remainder of the decade. After falling back after the collapse of the dot.com boom, the market set out on a buying spree fuelled by favourable economic conditions, plentiful supplies of deb and the raising of mega-private equity funds. The market subsequently peaked at a record pounds 46.6 billion in 2007.
Over this period, there was a marked reduction in MBOs, while MBI and private equity led deals rose both in volume and especially in value terms.
By end 2008, following severe tightening of credit supply and entry into recession, market value had more than halved to pounds 19.7 billion. Value then declined to pounds 5.6 billion in 2009, but recovered in 2010 to pounds 19.1 billion. In the first three months of this year, market value reached pounds 3.5 billion. Buy-out volume also declined sharply in 2009 and remained depressed in 2010 with only 383 deals. In the first quarter of this year ,deal flow remains relatively low at 103 buy-outs. The lack of UK M&A activity in 2010 contributed to buy-outs rising to a new high of 65 per cent of total M&A value.
Buyouts worth pounds 100 million or more fell from the record 67 in 2007 to only 13 in 2009. Activity rose sharply in 2010 in this deal size range, with 39 buy-outs completing, 84 per cent of total market value. In the first quarter of 2011 there have been five buy-outs over pounds 100 million.
Continuing restrictions in debt markets have seen average debt shares in financing structures fall to the lowest level recorded by CMBOR.
The average percentage of debt in all buyouts fell from 51 per cent in 2006 to 32 per cent in 2009 and only 26 per cent in 2010.
After falling to their lowest level since 1986 in 2009 at 61 deals, Midlands buyouts eased further in 2010 to 53 completions.
The first quarter of 2011 has seen the market stabilise at 14. Total value peaked at pounds 5.6 billion in 2003 with a plunge in value during 2009 to only pounds 319 million.
However, in marked contrast to deal volume, deal value in 2010 recovered sharply to pounds 1,768 million, with the sale of Swarfega maker Deb Group by Bar Continued from page one clays Private Equity in a pounds 325 million secondary buyout being a notable deal. Deal value in the first quarter of 2011 has been very modest at pounds 68 million. Family-controlled firms increasingly view a buyout as a succession option and have traditionally made up over two-fifths of volume. Last year witnessed something of a recovery, with private company buyouts making up 37 per cent of market volume, although there has been some further easing so far in 2011. Although divestments of unloved divisions provided major opportunities for buyouts for many years, deals from this source have passed their peak. In 2010, divestment from UK parent companies accounted for about a fifth of the market and is around a quarter of the market this year. Public-to-Privates (PTP) initially emerged as an attractive opportunity for smaller listed corporations disillusioned with the stock market, but subsequently came to involve opportunities to restructure larger corporations by taking them private in deals led by private equity firms. …