Shaken confidence hits all but biggest players

Jan 23 2008 by Iain Laing, The Journal

THE credit crunch sent the value of North-East deals plunging by more than a third in the last quarter of 2007, according to new figures.

But the decline was dwarfed by the 80% drop nationwide, with the value of UK buy-outs going from £15.4bn in the third quarter to £2.9bn in the last three months of the year, according to CMBOR, an analyst on the UK buyout market founded by Barclays Private Equity and Deloitte.

In the North-East the number and value of buyouts/buyins for 2007 decreased considerably, from 19 with a total worth of £195m, compared with 39 worth a total £308m in 2006. This was due to a substantial downturn in buyouts, while buyins remained static.

But regional businesses still completed substantial deals, such as the Wellstream flotation last April and the acquisition of Newcastle United by retail billionaire Mike Ashley.

Nationally, despite the quiet fourth quarter, 2007 still produced a record total deal value of £42.2bn, compared with £26.5bn in 2006.

Paul Kaiser, corporate finance associate partner at Deloitte in Newcastle, said: “In the North-East we saw a significant drop in MBOs when compared to previous years. However, we still saw two substantial deals last year; the acquisition of Newcastle United and MBO of Attends Healthcare for £63.3m.

“The credit crunch has clearly had a dramatic impact on bigger private equity deals in Q4, which has impacted the year’s overall deal value and volume. However, while mid-market deals (£10m-£1bn) were also down this quarter, overall in 2007 the value at £20bn was consistent with the previous three years.”

He added that the decline in dealmaking reflected the downturn in consumer confidence. Leisure sector deals in 2007 dropped 80% to just £1.26bn after £5.56bn in 2006. Business and support services showed the greatest increase trebling from £2.46bn last year to £7bn this year – demonstrating a private equity preference for business exposure rather than consumer exposure.”

Despite the major deals funded in 2007, the Q4 figures suggest quieter times ahead for buy-outs.

Co-head of Barclays Private Equity Tom Lamb said: “This has been the quietest single quarter for UK buyouts since 2003, and puts the UK buyout market back to 1997/98 levels on a run-rate basis.

“With around £35bn raised by UK private equity funds in the last two years, this trend suggests it could take several years to invest the current generation of funds compared to the two or three years which has become the norm.”

Turning to exits for buyout companies, Lamb said: “The credit crunch has hit all new deal activity, hurting secondary buyouts as an exit route. Having accounted for 12 of the top 30 exits in 2007, there wasn’t a single secondary buyout over £250m in the last quarter.

“IPOs of buyouts are also down – 11 of 2007’s buyout flotations took place before the credit crunch. Until the credit markets recover, buyout funds could have a problem on both buy-side and sell-side.”