Mega-buyouts bolster Q4 activity figures

In volume terms, the eight €1bn+ deals completed over the three months to December 2012 make the quarter the most active for large-cap acquisitions since Q2 2011. No three-month period has seen more deals completed in this bracket since Q3 2007, when 11 were recorded. To put this further into context, the four quarters from Q4 2006 to Q3 2007 each saw double-digit numbers of mega-buyouts; this has not happened at any other time before or since. The total for Q4 2012 is in line with the averages recorded in 2005 and early 2006 and has only been matched once prior to this in Q1 2003.

The mega-buyout uptick in Q4 was driven in large part by a single deal worth almost €4bn: the buyout by Terra Firma of UK-based Annington Homes was the largest deal completed over the past three years. If the fact a deal of this size could be completed is seen as evidence of resurgent confidence on the part of the investment houses and, more importantly, the financing banks, the fact that equity made up less than a third of the total purchase price only adds further weight to this argument.

So what does this mean? Are we going to see a return in the coming quarters of swathes of mega-buyouts and a fresh flood of credit? This is unlikely. Banks remain cautious and syndication of debt packages continues to prove challenging; larger private equity houses are currently finding it difficult to meet ambitious fundraising targets; dry powder left over from boom-era vehicles will soon begin to run out. The completion of a large number of big deals is, however, proof that investment houses are looking out rather than nervously inwards once again and that banks feel secure enough to commit to sizable debt packages without demanding a prohibitive equity counterbalance. This can only be good news for the market in the coming year.

This is an extract from the latest unquote" Private Equity Barometer, published in association with Arle Capital Partners. Click here to read the Q4 barometer in full

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