The return of the mega-buyout

John Bakie
11 August 2010

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Mega-buyouts of over тЌ1bn are on their way back following a drought of activity during the global financial crisis, according to unquoteт research. Signs of life are starting to appear at the very top-end of private equity investing, but Europeтs buyout market is mirroring its depressed economies. John Bakie gives an overview.

With a spate of large buyouts in recent weeks, activity in this highly visible end of the market seems to be picking up. Figures from unquote" research suggest activity is already well ahead of last year, in both volume and value.

So far, 2010 has seen a total of seven buyouts valued at over €1bn, with a total value of almost €12bn. This compares favourably with 2009, when there were just four large buyouts, with a combined value of €7bn. With other large buyouts rumoured to be in the pipeline, 2010 could see more than double the activity of 2009 by year end.

These figures have been helped by a number of high-profile, high-value buyouts in recent weeks, including the £2bn acquisition of RBS's Global Merchant Services, better known as WorldPay, and the €1.5bn buyout of Picard Surgelés, a French frozen food retailer. The UK & Ireland region has remained a focal-point for large buyouts, accounting for five of this year's seven €1bn plus buyouts.

However, volume and value of deals worth over €1bn are still well below those seen in the boom years. Volume peaked at 46 in 2007, while value hit a high of €108bn a year earlier, in 2006. Even compared to 2008, when the US sub-prime mortgage crisis was in full swing, today's mega-buyout market is depressed.

With the Bank of England's governor, Mervyn King, today announcing a downgrade in growth forecasts, it is perhaps unsurprising that major M&A activity has also only seen a modest recovery. Europe's economies are still reeling from one of the worst recessions in living memory, and it will be some years before growth returns to pre-crash levels. Investors and banks will also remain cautious, all of which will have an effect on this top end market for many years to come.