Private equity return to the M&A Market

April 21st, 2010 by Chris St Cartmail

Private equity players have increased their activity substantially in the first 3 months of this year compared to last year. In fact according the Centre of Management Buyout Research at Nottingham University (CMBOR) the £5bn in deal value in the first quarter of this year was more than they managed in the whole of 2009. However, the total deal volumes are eclipsed by the buying frenzy in the boom years where £20bn worth of buyouts were completed in a single quarter. Interestingly there has been increased activity in the UK compared to the US and Europe where private equity is still in the doldrums.

One reason for the increased levels is the growth in the secondary buy-out market where one private equity house sells to another. This accounted for three quarters of buyouts by value in the first quarter. Recent secondary buyouts include the Clayton Dubilier & Rice’s £400m buyout of British Car Auctions from Montague. Apax partners £975m purchase of pharmaceutical distributor Marken from Intermediate Capital Group was the third time that the business had been owned by a private equity house. These sort of deals where businesses are sold between private equity houses has been criticized as investors often have holdings in both the buyers and the sellers and the investors sometimes has the same asset as before but with fees and profit share taken out.

According to Christiian Marriott a director of Barclays Private Equity that sponsored the research by CMBOR said that many private equity firms have large amounts of capital that they need to deploy and this has lead to a more active market. However, some worry that this need to deploy capital has increased competition for assets and hence prices have started to rise. As such, the prices may not be sustainable. However, new capital requirement rules for banks could restrict lending for private equity deals in the future.