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Mid-market activity belies mega deal plunge

The value of leveraged buyouts in Europe in quarter three fell by more than two-thirds while providing evidence that the mid-market continues to be an active source of deals.

The value of large leveraged buyouts has plummeted by 70 percent in the third quarter compared with the previous three months, according to UK buyout firm Candover’s latest data.

The firm’s Unquote Barometer showed the value of large leveraged buyouts, deals greater than €1.65 billion ($2.36 billion), fell in Europe from €29.8 billion to under €9 billion in the third quarter to the end of September on the previous three months.

Terra Firma’s £2.4 billion (€3.4 billion; $4.9 billion) bid for EMI accounted for almost a third of this total. This bid had secured financing before August, when the extent of the liquidity problems in the debt markets became apparent.

The total value of deals in Europe has decreased by nearly 30 percent to €44 billion. Despite this, the overall number of deals remained constant at 359. Buyouts overall dropped by 28.9 percent from €58.9 billion to €41.9 billion.

Despite this fall, the mid-market, defined as €160 million to €1.65 billion, actually rose in the number and volume of transactions, increasing from 41 deals to 49 and from €23 billion to €26.5 billion respectively. The evidence supports the belief frequently voiced by market sources that the mid-market is able to continue as usual, despite the rise in the price of leverage and the scarcity of its availability for larger deals.

Candover’s managing director Marek Gumienny said the problems in the debt markets have forced buyout firms to focus on businesses’ ability to repay debt.

Gumienny said in a statement: “These latest figures show, as expected, a near 30 percent decline in the headline value of buyouts as the credit crunch began to hit big deals. However, underneath that, it is clear that in spite of the problems in the debt markets, private equity – and the banking community – have not closed for business.”

“Focussing on the fundamentals – can businesses repay their debt in three, five or seven years – is back in fashion,” he said.

Deals below €160 million also performed well accounting for €6.5 billion up 16 percent from €6.1 billion. Growth capital deals fell 38 percent from €2.6 billion to €1.4 billion while early stage increased to its highest level in 18 months with an 11 percent increase to €445 million.

Our sister publication, Private Equity International, is hosting the first European Mid Market Private Equity Summit in Munich on the 5 and 6 December 2007. Please click on the related link for further details of the programme and how to register.