Public-to-private deals on increase

14 July 2003

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A new report from the Centre for Management Buyout Research (CMBOR) has indicated that UK public-to-private deals have staged a recovery from a low in the first half of 2002. In H1 02 there were just six deals, a figure which increased to 16 deals in the second half of the year. So far 2003 has seen 15 deals, including Pizza Express, Holmes Place, Firth Rixson, Sport Entertainment Media Group, Reed Executive and Signature Restaurants. At a presentation of the CMBOR report, hosted by Weil, Gotshal & Manges, Weil partner Michael Francies emphasised that P2P deals have increased as a proportion of a more general slump in takeover activity. CMBORâ€™s Andrew Burrows identifies two peaks in UK P2P activity, in 1989 and 2000. Since 2000, the value of P2Ps has fallen from Â£9.4bn in 2000 to Â£4.9bn in 2001 and Â£2.7bn in 2002. It is expected that P2Ps will now rise, as stockmarket volatility eases and illiquidity in smallcap company shares piles pressure to raise cash. Some difficulties remain in the P2P market, however, emphasising the complexity of such deals. The CMBOR results indicate that the exit market for P2P investments is less robust than for MBO/MBI deals more generally. 59% of all P2P deals which completed between 1985 and 1999 are yet to exit, compared to 40% of all MBO/ MBI deals. In the same period, 11% of P2P deals ended in receivership, compared to 9% of all deals. Burrows attributes exit problems to the difficulty of turning around companies, and of locating trade buyers. MBO/ MBI market staticConcerning the UK MBO/ MBI market more generally, the CMBOR report indicates the value of MBO and MBIâ€™s has been extremely stable: over the last eight quarters total deal value has remained between Â£3bn and Â£4bn per quarter. UK MBOs and MBIs have increased as a proportion of takeover activity since 2000, when they represented 51% of all deals, compared to 61% in 2002. The total number and value of buyout deals over Â£100m has fallen precipitously, however, since 2000. The value of funds raised for the UK buyout market fell for the first time in 2002 (s11.3bn) following year-on-year rises since 1998. There is gloomy news for exits: receivership has been the predominant exit route for the past two years, and has increased, by number, from 108 cases in 2001 to 119 in 2002.