Final quarter records lowest deal value for a decade

Though it will come as no surprise that private equity investment in Europe dropped considerably in the final quarter of 2008, the scale of the decline just might; with deal value sliding 59% against the preceding three months from around EUR20bn to just over EUR8bn - the lowest quarterly total since Q2 1997 - according to data published in the unquote" Private Equity Barometer, produced in association with Candover.

This resulted in an almost identical fall in the final year totals, with the 2008 figure of EUR87bn down 59% from 2007's record EUR198bn. The declines, though, were less severe in terms of volume, which perhaps provides a more accurate reflection of sentiment given that it is not skewed by the disproportionate influence of a small number of mega-deals. Therefore, although Q4 did see a substantial slowdown of around 32% from 382 transactions to 261, the final year totals revealed a more moderate drop, with the 1,404 deals seen in 2008 just 14% less than 2007 and ahead of the number recorded in 2006.

With the economic problems continuing to be driven by the crisis in the banking sector, which rapidly accelerated at the beginning of Q4 following the September collapse of US investment banking giant Lehman Brothers and the subsequent government bail-outs in October, debt financing became ever more sparse over the final three months. Buyout activity therefore suffered most over the period, dropping by 55% and 61% respectively in terms of volume and value from 175 deals worth EUR17bn in Q3 to just 75 deals worth EUR7bn in Q4. Over the year as a whole the volume decline was again less pronounced, falling by 30% from 823 deals to 578, while value fell by 61% from 2007's record total of EUR175bn to EUR73bn.

Though much of the drop in the buyout figures, as alluded to above, was driven by the drop-off at the top of the market - with no deals occuring in the large-cap category (>EUR1.65bn) and just one deal worth more than EUR1bn recorded over the quarter - the paralysis in the debt markets also prompted significant declines across all size ranges. The broadly defined mid-market category, covering deals worth between EUR160m-1.65bn, recorded a fifth consecutive quarterly decline in value of 56%, from EUR9.3bn to just over EUR4bn, and a third successive drop in volume of 61% from 23 deals to just nine. The erstwhile smaller value range, containing deals worth below EUR160m, saw a reversal of the relative stability of the preceding 12 months as volume and value recorded respective drops of 54% and 57%, from 144 deals worth EUR6.1bn to just 66 transactions worth EUR2.6bn.

That the UK is being hit hardest by the current banking difficulties is evidenced by the regional breakdown, which displays a dramatic fall from grace for a country that has long dominated the European private equity scene. Volume saw an almost two thirds decline from 36 deals to just 13 while value recorded a remarkable 93% drop from EUR4.4bn to a mere EUR338m.

France was the most active region, despite recording a 37% drop over the period from 27 deals to 17, while surprisingly the "rest of Europe" category, containing Southern Europe and Ireland, came out on top in terms of value, though this was largely due to the fact that the single EUR1bn+ buyout occured in Portugal - the Magnum-led acquisition of Portuguese renewable energy utility Enersis.

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