Buyout activity slumps in Q4

Even though the rapid deterioration of the macro-economic environment over the summer did little to lift spirits, buyout houses managed to remain reasonably busy in the third quarter according to unquote" data. Propped by a strong July, deal volume was only down by around 10% between Q2 and Q3. Aggregate value however was almost halved - unsurprisingly given the string of mega-deals completed in Q2 - but still managed to exceed Q1 figures.

It would seem that the tough lending market and uncertain growth prospects have now taken their toll though: with just over one month left in Q4, deal volume has fallen by almost two thirds with just 40 deals completed so far, while overall value has plummeted by around 80%.

Deals valued above €250m can be counted on the fingers of one hand - the standouts being Astorg's €600m purchase of French electronic equipment business Microconnections, and the €400m buyout of Spain's Telecable de Asturias by Carlyle. More recently, Sagard had a harder time financing the €115m purchase of French chilled dough producer Eurodough from Sara Lee: the GP finally managed to secure a 2.5x EBITDA senior debt package accounting for less than half of the deal value, and is thinking of refinancing the business come brighter days.

As many banks are understood to have already hit their lending quotas for the year, GPs will be tempted to sit the last play out - short of a Christmas miracle, buyout activity for the whole of 2011 will therefore have a tough time matching last year's €66.7bn worth of deals. Overall value of 2011 buyouts so far currently stands at around €59bn, in line with unquote's forecast earlier this year.

The handful of sale processes currently underway could very well be pushed into 2012, as is the delayed auction for UK frozen food retailer Iceland. Other sizeable deals in the works include a potential take-private of UK life assurer Phoenix Group by CVC - a transaction likely to fetch in excess of £800m.

But the best bet for one last mega-deal signed off before year end could rest on telecoms operator Orange Switzerland, which comes with a €1.5-2bn price tag. Second bids are due in December, and PE houses Apax, Providence, EQT and Carlyle are said to be on the shortlist. Credit Suisse, JP Morgan and HSBC are understood to be arranging a €1bn, 4.25x EBITDA staple financing package to facilitate the sale - a testament to the current lending hurdles for large-cap deals.

Make hay

Despite all the doom and gloom, some players will have done quite well this year, often by making the most of opportunities in the first two quarters. Carlyle for instance was back on form following a relatively quiet 2010, completing eight buyouts worth nearly €3bn overall; these include the £1bn buyout of motoring services provider RAC in June. Bridgepoint was also among the most active GPs and signed off eight deals worth a combined €2.5bn - it notably contributed €240m of equity to the €1.02bn purchase of property management services group Foncia in May.

Barclays Private Equity (BPE) also kept busy this year, with six buyouts completed - up from four the year before. "Private equity firms have the luxury of not having to do 10 deals a day - they can definitely survive a fortnight of uncertainty and tougher lending committees," BPE managing director Gonzague de Blignières told unquote" in September. Two months down the line, it would seem that others might have to wait a bit longer than that before they can reduce their dry powder further.

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• Topics
• Buyouts
• Barclays Private Equity
• Carlyle Group
• Bridgepoint
• CVC Capital Partners
• Apax Partners
• Providence Equity Partners
• EQT