EUROPE - Investment continues downward slide

This continues the steep decline that set in following the Lehman collapse in September 2008. Indeed despite showing relative stability between Q4 2007-Q3 2008, the figures have dropped off dramatically and the first quarter numbers are down by a remarkable 86% in value against the corresponding period of last year.

There is the temptation to see the volume figures as offering some slight consolation against the gloomy stats, with the Q1 total showing a much more modest 18% decline quarter-on-quarter from 267 deals to 219. The continuing implication is that the value decline is being exacerbated by the lack of larger deals as debt financing remains scarce, while there remains a resilient core to the market that has the capital and the confidence to invest.

However, the truth of the matter is that deal numbers have also slumped to lows not seen since Q2 1998, indicating that the aversion to new investments is not merely isolated to just the larger end of the asset class. "Clearly, the cheque books have been locked away. No one needs to do a deal and until prospects improve; why would you?" points out Ian Armitage of HgCapital. "Investors are behaving rationally, belatedly adjusting their stance to monumentally moronic government policies."

Bear buyout market
Unsurprisingly, the buyout space continued to decline at a faster rate to the market as a whole in Q1, with just 49 private equity-backed acquisitions completed over the three months, down more than a third on Q4 2008. In terms of value the drop was sharper still, down by almost two thirds quarter-on-quarter to a little over EUR 2.5bn. Buyout investment figures are now at their lowest level since 1992 and 1995 respectively by volume and value.

There was a complete absence of any deals valued at more than €1bn, with the largest disclosed buyout of the quarter worth just €454m - BCC Private Equity's minority acquisition of Italian thermometry specialists Euromisure Srl. Even core mid-market deals are currently very difficult to finance, with the broadly defined mid-market category, now covering deals worth between EUR 100m-1bn, witnessing just eight deals worth a total of EUR 1.6bn - down by a third and a half against Q4 2008.

The small-cap range, covering deals worth less than EUR 100m, also witnessed similar drops of 36% and 53% respectively against the previous quarter. However, the fact that 41 transactions were completed in this area does suggest that there are still those actively seeking deal opportunities. Indeed, many of these deals contained no leverage; a risky play that reinforces the confidence that some investors have in the profitable potential of some discounted assets on the market.

In terms of the regional breakdown, the ongoing crisis in the UK banking sector continued to stifle average deal size (now the lowest on the continent), which has pushed the value total down a further 25% to EUR 252m - only the fourth highest overall. However, the country was alone in recording a modest increase of one deal in volume to 14, meaning it regained its historic pole position in activity terms. All other regions saw declines in both volume and value, with the DACH region perhaps faring worst - falling by more than 85% in value terms from EUR 1.1bn to just EUR 156m.

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