Corporate spin-offs still few and far between

Greg Gille
13 September 2012

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Primary transactions tend to be harder to source across the board nowadays, but corporate spin-offs have proved particularly elusive since 2009: while deals sourced from a trade player accounted for nearly a fifth of European buyout dealflow that year, this proportion fell to less than 15% in the first half of 2012 according to unquote" data.

In absolute terms, the volume of corporate spin-offs completed across Europe was more than halved between 2005 and 2011, from 189 deals to 85. Such transactions did account for an increasing part of dealflow between 2007 (18%) and 2009 (22%), mainly since deals sourced from fellow institutional investors registered an even steeper decline in that timeframe. But as GPs resumed swapping assets between themselves at an increasing rate, corporates have been relegated to a relatively minor source of dealflow.

"Corporate spin-off opportunities are less abundant," Grant Thornton partner David Ascott told unquote" while commenting on primary sources of dealflow. "Trade players are not that willing to streamline their portfolios: some have already done it throughout the downturn, and many of them are actually in reasonable shape. When they do happen, they can be hit-or-miss: quite a few corporate spin-offs have been aborted this year, notably when trading hasn't gone as well as expected."

One of the latest sizeble spin-offs to be pulled is Belgian mobile business BASE, which was put on the block by its parent, Dutch telecommunications company KPN. The sale process was halted in mid-August as KPN felt first-round bids were too far off the expected €1.6bn. Private equity suitors were said to include Blackstone, Cinven and Providence.

Although they have been relatively few and far between, the first few months of 2012 have nonetheless witnessed considerable spin-offs taking place. Montagu, for instance, completed the €430m management buyout of French spread producer St Hubert from Dairy Crest Group in July. The dairy foods group had bought St Hubert just five years prior. In the UK, Sun Capital Partners acquired the cosmetics, toiletries and household care products division of Personal Care from consumer packaging company Rexam for $459m in August. The sale of Personal Care was part of Rexam's restructuring programme designed to cut down on overheads.

Meanwhile, deals sourced from family and private vendors, which are often presented as particularly hard to secure in the current environment, haven't lost much ground in the buyout landscape since 2007: they still account for around half of private equity dealflow, even though they also registered a substantial fall in absolute terms between 2007 and 2011 (-50%).