Larger buyout plunge continues, smaller deals blossom

The disappearance of mega deals in the European buyout market and a drop of nearly 50 percent in large mid-market volume contrasted to gains for the lower mid-market, growth capital and venture in the fourth quarter.

European deal volume fell by 45 percent in the fourth quarter of 2007 to €24 billion ($35.4 billion) down from €44 billion in the previous quarter and nearly two-thirds below deal volume in the fourth quarter last year, according to UK buyout firm Candover’s Unquote Barometer.

Due to continued activity in the lower mid-market the overall number of deals went down by 378 to 351 from the third to the fourth quarter, a decline of only 7 percent. This was driven by deals below €160 million, which increased by 17 percent in number and value to 159 and €7.68 billion respectively. But deals below €1.65 billion and above €160 million fell by nearly 50 percent in value to €13.3 billion and in number by more than half to 24.

Despite the dramatic slowdown on the back of the credit crunch 2007 was a record European year with 1,525 deals worth €187billion completing in comparison to 1,347 deals in 2006 worth €185 billion.

Candover’s managing director Marek Gumienny said in a statement: “These final quarter figures reveal the full extent of the current credit crisis – the wheels have well and truly come off the debt market. Record-breaking times are on hold for now, but private equity will survive, just as it has done through previous cycles.”

Reflecting the plunge in mega deals there were only three transactions in the fourth quarter larger than €1 billion: Candover’s €1.6 billion acquisition of Dutch conglomerate Stork, CVC Capital Partners’ buyout of chemical company univar for €1.5 billion and Oakhill Capital Partners’ €1.4 billion purchase of Aerospace parts manufacturer Firth Rixson. The third quarter’s largest deal was UK buyout firm Terra Firma’s acquisition of EMI for £3.2 billion ($6.35 billion; €4.3 billion).

The credit crunch also restrained UK deal volume, which fell by nearly two thirds to €6 billion, although the number of deals only fell from 60 to 49. Deal volume in Germany approached the historically dominant UK buyout market with €5.5 billion invested across 44 deals, which was down from €6.86 billion in the previous quarter in 27 deals.

The Nordic region was the most affected in Europe with a more than 80 percent fall in deal volume to €700 million across 9 deals, which was down from 22 deals previously.

Aside from the woes of the larger market early stage deal value hit its highest quarterly value since before the burst of the dotcom bubble with €791 million invested 65 percent higher than the third quarter and 155 percent up on the final quarter of 2006. Despite such strong investment the number of deals decreased by 16 percent on the third quarter to 71.

Growth capital deal volume in the quarter was also up by 24 percent to €2 billion, although the number of deals was down by 8 percent to 87.