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GERMANY - 2006 LBO market off to sluggish start, says LEK

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The latest edition of the LEK Private Equity newsletter, written by Dr Paul Jowett, records that 2005 finished only marginally above 2004 in terms of dealflow, while the number of transactions closed during the year actually dropped. There are currently a large number of deals notionally 'in progress', although many of these will simply fade away, the report continues. The most common reason why many deals fail to complete in recent months appears to be the target’s failure to meet plan, and the vendor’s unwillingness to reduce the price accordingly.

The other trend, which has continued to increase in significance, is the rebound in both the IPO market and strategic acquirers. Two of the current transactions, Europcar and Degussa Construction Chemicals were haunted in the first case by a prospective IPO, and in the second by a likely sale to BASF. In the case of Europcar, a buyout has become more likely with Eurazeo getting exclusivity.

The prospects for 2006 are too early to call, says Jowett. The initial indications are that the healthiest dealflow is in the small-cap segment, and the weakest in the large-cap. Those that exist in the large-cap segment tend to be surrounded by questionmarks or dependencies. There are very few certain large-cap auctions coming up at present. Hardly surprising therefore that there has been increased speculation that some houses will opt for public-to-private opportunities.

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