Continental Europe is today's destination of choice for big buyout

Private equity backed restructuring of Continental Europe's old and not so old economies is in full swing – so much so that the UK, Europe's private equity cradle and home to the world's most sophisticated buyout market outside the United States, is in danger of losing its previously unassailable pole position.

Preliminary figures published in March by the University of Nottingham's Centre for Management Buyout Research (CMBOR) show private equity deal value in Continental Europe increasing relative to the UK. The figures show that for the last two years, total deal value on the Continent has been 60 percent higher than in the UK. In 2003, continental deal value was €38 billion ($46.1 billion) compared with €23 billion in the UK, while the previous year the respective totals were €44 billion and €25 billion.

“After years of well matched performance, clear water now separates deal values in the UK and the Continent,” says Graeme White, head of Barclays Private Equity, which alongside Deloitte & Touche sponsors CMBOR. “Whether this is a maintainable lead is less clear, not least because Continental growth is driven by a few very large deals.”

The 2003 trend towards a predominance of mega-deals was most clearly highlighted in Italy. The country's private equity industry enjoyed its strongest year on year growth ever: more than doubling the total value of deals from €3.5 billion to €7.8 billion. However, the vast majority of this increase was accounted for by just one deal: the €5.65 billion buyout, including debt of SEAT Pagine Gialle from Telecom Italia, which was the largest European buyout ever.

Despite having seen a decrease of large deals in 2003, the UK still outperform Continental Europe in terms of volume of transactions: 665 transactions completed in 2003 compared with Europe's 526.

Looking at Europe as a whole, this makes it nearly 1,200 buyouts in 2003 – an impressive total, and further evidence that Europe is currently the global buyout industry's undisputed centre of gravity: an unprecedented 65 percent of global private equity capital went into European deals last year, as Bloomberg and other data providers have found.

However, Barclay's White is not alone in wondering whether Europe, with or without the UK, can hold on to its place in the sun.

As David Bonderman, Texas Pacific Group's iconic founder, recently put it at an industry gathering in London: Europe may be today's truth, but Asia might be tomorrow's, and after that – who knows?

CMBOR and others will have to continue to add up the numbers.

The Boston-headquartered private equity firm with offices across Europe and Asia, has continued its investment in Western Europe with two further acquisitions. In March, the firm agreed to acquire 75 percent of the equity of Sportfive, a European sports rights agency valued at €560 million ($692 million). Sportfive, which generates 93 percent of its sales from marketing European football rights, is currently controlled by European broadcasting companies RTL Group and Groupe Canal+. While Groupe Canal+ is wholly exiting Sportfive, RTL will retain a 25 percent stake in the company.

Prior to announcing the football deal, Advent also said it had agreed to buy Dufry Group, a Swiss-headquartered operator of duty free shops, for an undisclosed sum, giving it ownership of 272 duty-free shops in 21 countries across the globe. The Bostonians have now announced five Western European investments in four months. In December, the firm invested in Radio 538, a commercial radio station in Holland. It also completed the public-to-private of Parques Reunidos, a Spanish amusement park operator, and invested in Moeller Group, a privately owned industrial and buildings electronic component manufacturer in Germany. Advent is currently raising a new fund dedicated to Central and Eastern Europe (see Privately Speaking on p. 34).

Investing from its first non-captive buyout fund, a €1 billion ($1.21 billion) fund closed in May 2002, the UK-based European mid-market investor has backed the £135m (€198 million; $245 million) management buyout of Deb Group, a provider of skincare products and dispensing systems. With its flagship Swarfega brand, Deb is the UK leader in the industrial hand-cleaning sector. Deb has operations in the UK, continental Europe, the US, Canada and Australia. The deal sees Bill Forrester, chairman of housing developer John Laing, join as chairman. Barclays Private Equity's previous deals in the support services sector include the €44 million buyout of NCC Group, previously part of the National Computing Centre, and the £35 million buyout of PC-PoS, a provider of retail technology hardware and services.

In its second major deal in Scandinavia, Palamon Capital Partners, the pan-European investor focused on the services sector, has completed an investment in Stockholm-based start-up Nordax Finans, a financial services company. Palamon has so far invested €13 million ($16 million) as the first phase of an agreement to commit an eventual €27 million. “As a pan-European investor, we are attracted by the combination of fundamentally strong Scandinavian economies and relatively immature consumer credit markets,” said Erik Ferm, a partner at Palamon. Palamon's only previous major investment in the region came in February 2001, when it invested in Zensys, a Danish provider of enabling technology for control networks.

The London-based European private equity firm has agreed to sell Duke Street Capital Debt Management (DSCDM), its leveraged debt fund management business set up in 2000. The buyer is David L. Babson & Company Inc, a US diversified investment manager. According to sources, Duke Street is reportedly receiving at least €60 million ($73.8 million) from the sale. DSCDM currently manages €1.6 billion and is raising its third CDO fund. Edmund Truell, Duke Street's chief executive said Duke Street intended to reinvest proceeds from the sale in its core private equity business, in part by committing a significant amount of capital to its next buyout fund, which is expected to launch some time next year. The firm, which manages €2 billion in private equity, is currently investing Duke Street Capital V, a European mid-market buyout fund which according to Truell is just over 50 percent committed at this stage.

The Nordic private equity firm has agreed to sell Swedish heating and sanitation wholesaler Dahl to French glass and building materials group Saint-Gobain. Financial details of the deal, which is subject to competition authority approval, have not been disclosed. EQT said its EQT II fund had divested all its shares in Dahl. In January, EQT II fund sold Finnish baker Vaasan & Vaasan to UK-based private equity firm CapVest for an undisclosed sum that was valued by sources at just under €300 million ($363 million). The firm is currently working with London-based placement agent MVision to raise its third buyout fund.

BA Capital Partners Europe, the European private equity arm of Bank of America, through portfolio company Enricau Group, has acquired French automotive services firm César Vuarchex. Financial details of the transaction were not disclosed. César Vuarchex, which posted turnover of €38.1 million ($46.2 million) in 2002, will be integrated with Enricau Group, which operates in the same sector.

The €600m French-Canadian private equity fund has acquired niche French publishing company Groupe Moniteur from a syndicate led by Cinven, Carlyle Group and Apax Partners for €275m ($334 million). Credit Agricole Indosuez, Credit Lyonnais and ING are reported to be providing debt facilities for the deal. The firm reportedly beat off competition from UK-based private equity house Permira as well as trade bidders Reed Elsevier, EMAP and WK to buy Groupe Moniteur, which publishes 18 titles for the building and local authorities sector including Le Moniteur des Travaux Public and La Gazette des Communes. Sagard was created in 2002 when the family of Canadian billionaire Paul Desmarais teamed up with other wealthy families to set it up.

The international private equity fund backed by CalPERS and Richard Ellis (CBRE), has completed its first UK private equity investment with a £10.8 million (€16.2 million; $19.7 million) management buyout of NHP Healthcare Partnerships (NHPHP) from NHP Plc. NHPHP is a UK-based psychiatric rehabilitation business that currently operates three hospitals and plans to open four more this year.

Al Foglio, a London-based director of GI Partners described the firm's first investment in the UK as a sign of things to come: “We're putting a big focus on asset-backed, mid-market businesses in Western Europe, and the UK is our No.1 target.” Headquartered in Menlo Park, California, with an office in Los Angeles, GI Partners was founded in March 2001 and opened in London in 2002. The investment in NHPHP was made from the GI Partners I Fund, which closed in March 2001 on $526 million of committed capital. Of that, $500 million came from CalPERS.