Investment stalls as economic uncertainty returns

The year was supposed to end on a high; after two successive quarters of growth and with the paucity of debt reckoned to be a diminished threat to deal-doing, the familiar year-end rush of deals was expected to return. If the last two years have taught us anything, however, it is that the only thing that is predictable is unpredictability.

What returned was economic uncertainty, as figures in the newly released unquote" Q4 Private Equity Barometer, produced in association with Candover, confirmed that the UK had failed to emerge from recession and economists warned of the danger of a double-dip recession. Pan-European overall activity subsequently dropped slightly from the preceding quarter, shedding 10% and 8% by volume and value respectively recording 231 deals worth a little over €10bn.

Worthy of note is the proportionately stronger performance of value than volume, which is largely a result of the continued presence of buyouts at the top end of the value spectrum. There were two large secondary buyouts funded with substantial debt packages - EQT's €2.3bn acquisition of Candover- and Cinven-backed academic publisher Springer Science & Business Media, and Apax's €1.1bn purchase of ICG-backed clinical trial logistics business Marken - proving that debt is not the issue it was 6-12 months ago.

In fact, buyouts in general held up comparatively well over the three months, with activity increasing for the third consecutive quarter to 77 deals. This, though, still represents a slowdown on Q3 numbers, with the growth rate dropping from around 22% to 8%, while value actually declined slightly to just under €9bn.

Notwithstanding the performance at the very top of the value spectrum, this drop off in value terms in the buyout space is indicative of a general movement down the value chain, as economic uncertainty prompted renewed pressure on pricing. The mid-market, defined as deals worth between €100m-1bn, saw a downturn of 22% and 13% in volume and value terms, while the small-cap range saw a contrasting uptick of 20% and 37% respectively.

Interestingly, the two large deals mentioned earlier were just the tip of the iceberg in terms of secondary buyouts, which made a major return in Q4 following a protracted lean period. A total of 21 deals, more than a quarter of the overall total, were sourced from other institutional investors, more than double the number last time around. Conversely, and coinciding with the generally movement down the value chain, buyouts from family or private vendors dropped substantially.

As these figures might suggest, the overall statistics were dragged down by poor investment figures in the growth capital and venture sectors, which worryingly saw substantial declines despite a seemingly beneficial market backdrop. The 97 growth capital deals worth €1.1bn represented slides of 15% and 35% in volume and value respectively, while venture investments dropped 22% and 14% to 57 deals worth €243m - the lowest figures for 18 months.

Click here to view a new video interview on the Barometer with unquote's Nordic editor Rikke Eckhoff and Head of Research Emanuel Eftimiu.

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• Topics
• Investments
• UK / Ireland
• DACH
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• Secondary buyout
• Candover