Buyouts break European record

The industry is braced for a slow down as buyouts hit a European high in the first half of 2007. The second half looks more restrained after the banking liquidity crisis of the summer. Continental European deals were among the largest, said Tom Lamb, co-head Barclays Private Equity.

The European buyout market had a record first half with deals to a total value of €91.8 billion, a 15 percent  increase on the first half of 2006, according to the latest numbers from the Centre for Management Buyout Research.

The UK is still the largest market at €35 billion, followed by France at €15.8 billion and Germany at €14.4 billion. Secondary buyouts were the most valuable source in continental Europe at €20.2 billion and public-to-privates the most valuable in the UK at €20.7 billion.

Mark Pacitti, corporate finance partner at accountants Deloitte, a sponsor of the report, said: “Although first half numbers are really strong, we are unlikely to see the trend continue in the second half. The current turmoil in the debt markets is having a major impact on big ticket deals across Europe, although mid-market deals of less than €500 million seem likely to be more resilient.”

Third quarter completions are expected to be down dramatically. It remains to be seen whether activity picks up in the fourth quarter, he said.

Tom Lamb, co-head of Barclays Private Equity, also a sponsor of the report, said: “Continental Europe continues to be where most of the big deals are completed: just 2 of the 15 largest deals in the first half of 2007 were in the UK.  But the UK still leads the way on public-to-privates, with 7 of the top 10 such deals in the same period.”

Secondary buyouts have continued to dominate exits, accounting for half of the exits by number and 8 of the top 10 exits by value. It remains to be seen whether the changes in the credit market over summer limit this type of exit option for private equity managers.

Deal sizes have continued to increase across Europe. The number of deals above €500 million increased from 26, or three percent of the total, in the first half of 2006 to 44 or seven percent of the total, for the same period this year. The average deal size across Europe is now a record €141 million.

Deal pricing also increased. In the first half of 2007, the price earnings ratio was between 10 and 11 times for deals below €100 million and between 16 and 24 times for deals over €100 million.

The first half also saw record debt levels in European buyouts. The amount of debt in buyout financing has increased to 55.8 percent in the first half of 2007 compared to around 50 percent for the previous five years.