European buyout market declines in Q3

Deals worth less than E10bn were completed, down sharply from the E21bn invested in Q2.

The European buyout market has slowed significantly in recent months, according to research published by Initiative Europe.

In the third quarter of this year, a mere 73 deals worth E9.8bn were completed, down from E20.6bn in the previous quarter and a record E23.2bn a year ago. It was the least busy quarter since early 2000 both in terms of number of transactions and amounts invested.

Despite the E10.8bn slide, observers maintain that the buyout market has held up reasonably well given worsening economic conditions and the impact of the US terrorist attacks on September 11.

According to Initiative Europe, the mid-market in particular has continued to deliver dealflow despite adverse conditions. Moreover, a number of large deals completed in the second quarter, including the E3.5bn buyout of Yell from British Telecom, made the Q3 drop look particularly significant.

It is early days to decide whether the buyout market will have sufficient resilience to weather the current storm. “We are still too close to September 11 to really make a judgement”, one London-based banker told PEO. “Since the attacks, there has been too much speculation and not enough evidence as to what the economic impact is going to be. We are finding it difficult to predict the cashflows of the credits we want to invest in, but deals are definitely still coming through the door. The question is can they get done.”

A number of transactions such as Apax Partners’ proposed purchase of MPM have run into trouble recently. A number of other deals are uncertain to complete. Some comfort comes from the syndicated loans market where, according to a source, “the telephones are still ringing. There is still some appetite for syndication.”

However the degree of caution generally that most investors apply at present means that the turn of the year should see some significant pent-up demand for leveraged buyout assets. How much of that will convert into dealflow will largely depend on consumers: if confidence is restored, credit quality will improve, and the buyout markets will be likely to rally.