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UK '06 Private Equity Investment Breaks Records

by Robert Lee, Tax-News.com, London

27 December 2006


The UK private equity market has beaten all previous highs in 2006, reaching GBP25 billion (US$49 billion), according to the end of year buy out data round-up released today by Centre for Management Buy-out Research (CMBOR), a provider of analysis on the European private equity market founded by Barclays Private Equity and Deloitte.

Commenting on the report, Mark Pacitti, Corporate Finance Partner at Deloitte observed:

“Last year’s Christmas hangover lasted well into 2006, with first half deal levels looking less than healthy at around GBP10 billion. Coming into the summer, we saw a new energy in the market as figures more than made up for the sluggish start to the year bumping up 50% to GBP15 billion for the second half. Notably, in the highly competitive mid market range of deals between GBP100 million and GBP500 million, we have seen total deal value increase by 30% to GBP10 billion compared with GBP7.5 billion in 2005. As a result, average deal size (over GBP10 million) has gone up by 9% this year hitting GBP134 million.

“Overall, we have seen a better shape to the market in 2006 with the figures made up by a strong mid-market rather than a small number of deals at the top end. With the drop off in the big deal figures, we have also seen a drop in the public to private figures (from GBP7.2 billion last year to GBP5.1 billion this year), reflecting a strong year for the stock market overall and corporate M&A."

Tom Lamb, co-head of Barclays Private Equity, added:

“The decline of UK public-to-privates in 2006 is in sharp contrast to the experience in the US where public-to-private activity in 2006 has already exceeded 2003, 2004, and 2005 combined. The largest deal in the UK in 2006 is the buy-out of United Biscuits for £1.6bn which is puny compared with the gargantuan deals being done in the US and also starting to emerge in Europe. The dearth of very large deals in the UK is surprising considering the substantial funds that have been raised this year by some of the UK based houses. Although the first take-private of a FTSE 100 company it is certainly well within their reach. It appears that the jumbo funds will either have to increase the bid premia significantly or go hostile in order to bag the elephant.

“In the meantime it looks like most of the money raised this year will be heading to Europe. Just five years ago Continental Europe was the same size as the UK market; two years ago it was double and now, in 2006, it is treble the size.”

The report also found that:

  • There has been a shift back towards primary deals in 2006, particularly at the top end of the market.
  • Value share of PTP and secondary MBOs has fallen from 66.8% to 52.1%, whilst combined value of family and divestment deals has increased from 30.3% to 46.8%.
  • Record exit figures of GBP24.4bn were achieved this year, up from GBP21.9bn in 2005 ;
  • Leisure dominated the market in 2005 and continued to do so in 2006 hitting the GBP5 billion mark again;
  • Industry success stories were seen in food & drink (GBP3.3 bn up from GBP0.2bn); retail (GBP3.2 up from GBP2.6bn) and TMT (GBP2bn up from GBP1.5bn);
  • The largest number of deals was seen in manufacturing but deal size was low;
  • Debt multiples have almost doubled in the last three years, hitting an average 10.2 EBIT in 2006 for deals over GBP100m.

A comprehensive report in our Intelligence Report series examining tax-sheltering arrangements for investors, including Venture Capital, Forest Finance, Film Finance, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report5.asp

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