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France overtakes UK private equity

28 Sep 2011

The overall value of European buy-outs has reached €41.5bn in the first three quarters of 2011, remaining consistent with 2010 which recorded a full year value of €56.5bn and more than double the total value of just €20.6bn in 2009.

According to data from the Centre for Management Buyout Research (CMBOR), now based at Imperial College London, sponsored by Barclays Private Equity and Ernst & Young, France has become the dominant force in the European private equity buy-out market in 2011 recording a total value of €9.3bn in private equity-backed buyouts so far this year, accounting for a quarter (23 per cent) of the total and outstripping the UK value of €8.9bn and €5.8bn in Germany.

French connections

Total deal value in the region quadrupled between 2009 and 2010 recording €1.9bn and €7.9bn respectively. So far this year (2011), France has already recorded €9.3bn in value which includes the €2.1bn buyout of Spie in August and the €1bn buyout of Foncia in July.

Germany also made a significant recovery with buyouts totalling €5.8bn so far in 2011 representing 14% of the total European buyout market. Germany had fallen below a tenth of its 2007 record value (€26.9bn) with just €1.9bn recorded in 2009.

The UK accounted for just 22 per cent of the total deal value in Europe compared to 40 per cent in 2010. France accounted for 14 per cent last year.

The total value of European private equity-backed buyouts in the first three quarters of 2011 is €40.8bn – on track to record a similar full year value as last year (2010: €55.1bn).

The data also reported that deal activity has slowed during the year so far with a total value of €12bn in Q3 compared to €15.3bn in Q2 and €13.6bn in Q1. For buy-outs over €100m, the average proportion of equity in the capital structure fell from 60 per cent in 2010 and 2009 to 47 per cent in the first three quarters of 2011.

Financing push

Lending from European banks also increased in 2011, with the average proportion of equity in European deals valued above €100m falling from 60% in 2010 to 47 per cent and debt rising to 47 per cent from 38 per cent in 2010.

Large buy-outs valued at over €1bn have slowed so far in 2011, with only seven deals completed at a total value of €10.2bn. This compares to 11 deals at a total value of €19.3bn in 2010 and only two deals with a combined value of €2.8bn in 2009.

Mid-market buyout activity (deals between €100m- €500m in value) has stabilised and is on track to reach a similar full year value last year (€16.5bn: 2010) with 56 deals completed at a total value of €12.3bn so far this year, the report found.

Christiian Marriott, director at Barclays Private Equity said, “We see a clear divergence of private equity activity in Europe this year with Continental Europe recovering well, in contrast with a decline in the UK, and despite chronic uncertainty in the Eurozone. France has led the way so far this year with several large transactions, although this dominance may not continue with a few sizeable buyouts due to complete in the UK later this year, including the buyout of RAC.

“Given the current economic environment and stresses in the banking sector, recovery in the private equity buyout market is likely to be slow. The level of exits may well fare better, with many firms focussing on returning capital to their investors ahead of further fundraising – the total value of exits in 2011 looks to be on track to reach a similar full year value as last year.”

Sachin Date, private equity leader for Europe, Middle East, India and Africa (EMEIA) at Ernst & Young, added, “Even though European buyouts have improved, the uncertainty in the economy — with threats of a double-dip recession and volatility in the public markets — challenges whether this increase in activity can continue. Though, over the long term, private equity is proving that its active ownership enables it to create stronger and more profitable businesses and that its industry remains robust.”

Exit markets robust

After a very strong 2010, the European exit market remains robust with the total value of private equity realisations in the first three quarters of 2011 reaching 70 per cent (€42.7bn) of the overall value of private equity realisations in the whole of 2010 (€61bn).

It also found that secondary realisations are at a similar level to trade exits in Europe in 2011 so far. A total volume of 125 secondary exits valued at €21.1bn is just higher than total volume of 113 trade realisations valued at €20.6bn.

The exit market in Continental Europe looks strong for the last three months of 2011 with several exits in the pipeline including the €4.6bn sale Skype. In the UK however the exit market has halted, with very few realisations in the pipeline for Q4 2011. The IPO market in Europe remains slow in 2011 with just five flotations completed in Q2 and few possible flotations in the pipeline for the remainder of the year.

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