How low can you go?

01 January 2009

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Preliminary figures released by unquote" colour in a picture we've all had sketched for some time - a rapidly imploding buyout market in the UK and beyond. Across Europe buyouts were down more than 60% to just over EUR71bn in 2008, according to the European Buyout Review, produced by unquote" in association with Bridgepoint

The contraction in deal values will likely intensify this year. The week before Christmas, specialist tea and coffee retailer Whittards was sold to EPIC Private Equity for less than £2m - just three years after Baugur had bought the chain for nearly £22m. This marks one of what is likely to be many distressed sales as administrators prepare for a bloodbath on the high streets (indeed a handful of administrators had mentioned this ahead of Christmas, indicating they would be among the few to be busy). Whittards is just one of a number of long-standing British institutions to go bust - Woolworths' slow decline came to a head as this issue went to press, and china and crystal giant Waterford Wedgewood had cracked.

In fact, ratings agency Standard & Poor's estimates that the default rate (based on its speculative grade category companies) may rise to more than 11%, up from just over 3% for the last 15 years. While this is handsome pickings for some players, many of those seeking shelter will already be private equity-backed. In France, for example, clothing retailer Morgan just went into administration; Apax holds a 40% stake in the company, which it has held for 10 years.

The timing of an eventual recovery is anyone's guess. Looking to the last downturn following the dotcom implosion may give some insight: it points to a number of spinoffs (2001 and 2002 was a big time for new names); a two-year time horizon before buyout figures reverse their downward trajectory (though unlikely the heady days of 2007 will ever be repeated); and growth steadier than the years leading up to the peak (see graph, cover).

As deals shrink in number as well as value, unquote" will look to uncover the underlying trends in the market. This issue features reader opinions on what we should expect for the year ahead. We are interested in your thoughts - please ring or email me on my details below.

Yours sincerely,

Kimberly Romaine

Editor-in-chief, unquote"

Tel: +44 20 7004 7526

kimberly.romaine@incisivemedia.com.