Private equity bounces back

The latest unquote" Private Equity Barometer, produced in association with Candover, revealed a 107% increase in private equity activity across Europe, totalling EUR9.6bn across 257 deals.

Buyouts saw the greatest uptick, up a remarkable 135% to EUR7.9bn and the average deal size also increased (see graph 1), with the first mega-deal recorded of the year in Q3 with the EUR1.7bn merger of BC Partners- and Electra Partners-backed Baxi with De Dietrich Remeha.

These impressive numbers, however, must be seen in the context of the barren market from which they arose. Indeed, year-to-date figures show that investment levels remain 39% and 78% respectively off those seen in the first nine months of 2008.

Moreover, the private equity industry is still plagued by issues in incumbent portfolios. Although the market may have bottomed out, it is certainly not out of the woods yet.

The UK recorded 22 buyouts worth EUR2.7bn in Q3, a rise of nearly a third (29%) in volume and a more than doubling (109%) in value.

Mid-market might

The turnaround in fortune during the past six months has been mirrored in buyouts, which witnessed the most marked growth - an increase of about 30% in activity and a remarkable 135% in value (see graph 1).

This represented the highest value total seen since before the Lehman Brothers collapse, though in terms of deal numbers, the figure remains five shy of the total seen in Q4 2008.

The sharp uptick in value is due in part to the completion of the EUR1.7bn merger of BC Partners and Electra Partners-backed boiler manufacturer Baxi with rival firm De Dietrich Remeha.

Interestingly, the deal involved little new equity - about EUR100m - and only rolled over debt while net leverage was in fact reduced as a result of the deal.

The appearance of a single mega-deal was not the story of the quarter for buyouts, however: the biggest move was in the mid-market - broadly defined as deals worth between EUR100m-1bn - which saw volume and value more than double from 10 deals worth EUR2.1bn in Q2 to 21 deals worth EUR4.8bn in Q3 (see graph 2).

In contrast, the small-cap end of the spectrum was more a picture of stability during the three months, rising only 11% and 13% in volume and value respectively to 52 deals worth EUR1.4bn. This movement up the value chain coincided with a sharp rise in the number of deals being sourced from family or private vendors, which had been stifled in recent times by a mismatch in pricing but which saw activity levels double over Q3 to 41 transactions.

It would seem fair to surmise that economic optimism has resulted in greater confidence in trading, subsequently pushing up pricing.

There was a stagnation in secondary buyouts and corporate disposals, though as distressed deals begin to be worked out as recovery gathers pace this will likely change. Watch this space.

Growth lacks gusto

This story of recovery did not play out quite as simply in growth capital, though despite a slight decrease in deal numbers - down by two to 110 - there was a substantial rise in total value, which saw a 36% rise from less than EUR1bn to more than EUR1.3bn (see graph 3).

Several large new equity restructuring deals were largely responsible for this value surge, notably accounting for two of three EUR100m+ deals that completed over the quarter, the first time any deals of this size had appeared since Q1: German tiling business Monier Group and UK-based Aerospace company Firth Rixson.

Venture falls short

Venture, too, failed to match the spectacular growth seen in the buyout market, though there were increases nevertheless: 75 deals worth EUR317m represent increases of 15% and 28% in volume and value respectively on the second quarter (see graph 4).

Despite this, the early-stage segment - which appears to have lagged behind buyouts in terms of progress throughout the downturn due to its lack of direct involvement in the debt market - remains sluggish, with Q3 numbers failing even to match the modest figures witnessed in Q1.

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