Legal and Finance: Private Equity Underpins Mergers and Acquisitions
Private equity is about the only thing propping up the mergers and acquisitions market Such transactions accounted for just under half of the total M&A value in 2002, according to research released from the Nottingham University-based Centre for Management Buy-Out Research (CMBOR).
It sees a continuing rise in the trend for private equity to underpin the M&A market - from a 14.7 per cent share of overall value in 1995, private equity activity increased to 44.5 per cent last year.
However the research, co-sponsored by Barclays Private Equity and Deloitte & Touche, shows that the total value of the UK buy-out market for 2002 was just pounds 14.3 billion, a fall of more than a quarter from the 2001 figure of pounds 19.5 billion.
This slump in activity was largely caused by a sharp decline in the number of so-called mega-deals - transactions over the value of pounds 100 milli\on - with only 27 completed compared to 36 in 2001.
However, small to mid-market deals have remained relatively stable, with the value for those between pounds 50 million and pounds 100 million up on last year at pounds 1.49 billion.
Phil Griesbach, director of Barclays Private Equity in Birmingham, said: 'Although the UK buy-out market has suffered its second year of decline in succession and its worst since 1997, 2002 was considerably better than many commentators feared 12 months ago when deal values collapsed following September 11.
'In fact the buy-out market was pretty stable throughout 2002 with the mid-market holding up especially well. With this solid base and some positive leading indicators, such as the 16 per cent fall in buy-out receiverships, the outlook for 2003 is a little more encouraging.
'Owners of businesses are finally starting to get more realistic in their price expectations and corporate finance advisers are reporting increasing numbers of good quality deals in the pipeline.
'Vendors are vending, lenders are lending and I predict that the privateequity houses will soon be spending.' Nick Johnson, corporate finance advisory partner at Deloitte & Touche in Birmingham, said: 'Despite what has been a difficult deal making environment, the buy-out market has been supported partly by the level of public companies going private, with 12 delistings recorded in the second half after six up to June.
'As the stock market falls, the gap between small cap and the FTSE 350 indices continues to widen, encouraging financial buyers to spot investment opportunities. At the same time, small quoted firms are growing increasingly frustrated by poor stock market valuations and more receptive to approaches from private equity houses. The climate is set for public to private activity to accelerate further. …