Private equity investment in the UK reached just 2 billion in the first quarter of 2009, with two thirds of this total from just one deal, according to the Centre for Management Buy-out Research (CMBOR). This is compared to 1.3 billion in the last quarter of 2008 – the lowest quarter for over 13 years. CMBOR also reported that deal numbers declined to just 61 in the first quarter of this year, from 92 in Q4 and 152 in the same period in 2008.
“We are witnessing a market showing little sign of life, much as we predicted on the back of a very quiet end to 2008,” says Christian Marriott, director at Barclays Private Equity. “The very quiet first quarter is likely to lead to a very quiet 2009 and we expect few signs of green shoots of recovery.”
The CMBOR’s findings reveal that public-to-private transactions during the first quarter of 2009 accounted for over 71% of all deals by value (1.4 billion) from five de-listings. Of the total 61 deals, 38% came from receiverships, which accounted for 14% of all deals by value. Secondary buy-outs, which had slowed to 12% of all deals in 2008, continued to decline in the first three months of 2009, accounting for less than seven per cent of market share.
“While there has been an increase in the share of public-to-private deals, there has been a corresponding decline in the number of family/private deals,” says Marriott. “These deals, which had been growing in market share since 2003, accounted for just over a quarter of deal flow and seven per cent of all deals by value. It seems that the only willing sellers in this market are the public markets.”
The exit market has also remained slow in the first quarter of 2009. So far, there have been just 30 exits at just 221m. Exit value has been falling since the record year of 2006 when total value realised reached 26.9 billion. Exits ended last year at just 9.8 billion from 324 deals, according to the CMBOR’s research.
“There is a distinct sense of deja vu about the data. In the recession of the early 1990s, private equity investment stalled in much the same way and in quarter one of 1991 declined to just 447 million,” says Marriott. “Receiverships also increased during this period – reaching 124 in 1991 – and it was only in the mid-1990s that the buy-out market entered a period of robust growth. Conversely, receivership as a source of buy-out deals peaked at 107 in 1991.
“We are unlikely to see much in the way of market recovery in the next quarters. Rather, the expectation is for the market to stabilise at a new lower level throughout this year. When confidence and leverage return to the market, we should see activity begin to increase, but the timing of this is by no means certain.”
The CMBOR’s latest research highlighted other key findings: there have been just eight deals in the 10m to 100m range in the first quarter of 2009 in the UK, down from 39 in the same period in 2008; the average deal value this year is just 32m, down from an average of 34m in 2008 and well below the 69m average set in 2007; and buy-out activity above 100m has plummeted with a combined total of just five from the last two quarters, compared to 22 in the preceding six-month period.
CMBOR, a UK provider of research and analysis on the private equity market, sponsored by Barclays Private Equity, was founded at Nottingham University Business School in 1986.
The organisation’s data covers all buy-out activity and therefore includes transactions funded on a cash or debt-only basis as well as traditional private equity-funded buy-outs.
D.C.