Climate: UK buyout market in slow return to form

Particularly large deals in 2002, by source, included the z263m family sale of the Commodore Group to ABN AMRO Capital; the EUR 1.49bn and EUR 1.3bn public-to-privates of Arcadia and Littlewoods respectively, both backed by Bank of Scotland Integrated Finance; the EUR 3.2bn secondary buyout of the Unique Pub Company, backed by Cinven and other private equity investors; and the EUR 1.5bn secondary buyout of Coral Eurobet backed by Charterhouse Development Capital. There is general consensus among commentators that the proportion of the UK economy owned by private equity will continue to increase, with an increasing prominence of secondary and tertiary buyouts, especially as the position of trade buyers remains difficult. Regarding other deal sources of potential, there is speculation that the combination of under-performing FTSE 100 companies and a private equity fund overhang estimated at EUR 30bn in Europe could lead to a rush of public-to-private bids, with Pizza Express currently awaiting de-listing.

The total number of exits fell from 82 in 2001 to 77 in 2002. The greatest proportion of exits was by trade sale, increasing to 39 deals compared to 37 in 2001. The largest trade sale of the year was Morgan Grenfell Private Equity's s2.6bn sale of Whitbread Pubs & Bars to Enterprise Inns. The other, mega deal of 2002 was the successful sale by Permira of Homebase to a trade buyer, GUS. Approaches to battling bear market At a time of uncertainty and nervousness, there is naturally an increased focus on quality deals, and with private equity firms under pressure from their limited partners to invest, there is no shortage of private equity money circling a reduced pool of assets. Increasing dealflow is therefore a priority, and sector specialisation is one approach receiving increasing attention from private equity players in 2002. Such specialisation helps secure differentiation and bidding advantage in competitive tendering, or else to obtain exclusivity in deal sourcing. In the case of smaller private equity firms, without the resources to specialise, other approaches to deal origination are being adopted. Such approaches include regional diversification, a focus on speed of response in decision-making, and a supportive approach to debt structuring and post-investment relationships. Bank subsidiaries have the option to leverage parent bank capacity and contacts in order to generate proprietary dealflow. An essential ingredient to any rebranding or refocusing exercise is accompanying PR. All in all, we can to hear expect more noise as players seek to lay claim to market space over the months ahead.