Instability fears drag buyout market down after fine start

BRITAIN'S buyout market staged a spirited recovery in early 2010, although it has lost momentum as concern grows about the threat of further economic instability.

The overall value of buyouts in the first half of 2010 has already overtaken the 2009 full year transaction value by 45 per cent, according to data published by the Centre for Management Buyout Research (CMBOR).

The overall value of buyouts in the first half of 2010 was 8.1bn, compared to 5.6bn for the whole of 2009.

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Altogether, 87 private equity-backed buyouts were completed in the first half of 2010, with a combined value of 7.9bn.

This figure is already 67 per cent higher than the 4.7bn recorded for the whole of 2009 with 120 private equity-backed deals. The average size of private equity-backed buyouts in 2010 has more than doubled since 2009 from 39.5m to 91.2m.

There was a tougher deal environment in the second quarter, with total deal activity almost halving in value. There were 47 transactions with a combined value of 5.2bn in the first quarter and only 40 deals with total value of 2.7bn in the second quarter.

Buyouts in the upper mid-market size range (100m to 500m) accounted for more than half (55 per cent) the total value of private equity-backed deals so far this year, compared to a third of the deal market in 2009.

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Private equity buyouts as a percentage of overall UK takeover activity reached an all time high of 84 per cent by value in the first quarter of 2010.

Steve O'Hare, the director at Barclays Private Equity in the North, said: "After a strong start to the year driven by a surge in large secondary buyouts, there has been a slowdown in momentum, although 2010 will still show the market recovering from the lows of 2009.

"The value of private equity-backed buyouts in the second quarter is just over half the value in the first quarter, driven by a range of factors that delayed timetables and created uncertainty in the buyout market. With volatility in global equities, a General Election and uncertainty around future capital gains tax, it is not surprising that the momentum in UK buyouts flagged.

"The exit market has remained quiet in 2010 in line with 2009 activity levels. A number of large flotations were anticipated this year but renewed stock market turbulence has held back the IPO (initial public offering) market, with only two private equity-backed IPOs taking place so far.

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"We may however see a gradual increase of sizeable flotations in the second half of 2010, particularly where firms are willing to reduce debt levels before or after IPO, with some potentially well received listings in the pipeline."

The average deal size has increased in 2010 to 91.2m compared to 39.5m in 2009.

There were 10 buyouts in the retail sector during the first half of 2010, the largest sector by value, with a combined value of 2.5bn accounting for 32 per cent of the total.

The two largest retail deals were KKR's acquisition of Pets at Home in March and the sale of Lord Kirkham's Doncaster-based sofa retailer DFS to Advent International in June.

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