UK buy-out market starting to reflect increasing market uncertainties

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Conditions in the UK buy-out market are beginning to reflect the increasing uncertainty in financial markets since the global economic downturn was given extra impetus by last month's terrorist attacks on the US, according to the latest research from Royal Bank Private Equity and Unquote UK Watch.

Both the number and the value of deals in the £10m-plus buy-out market dipped significantly in September. Deal value fell to £21.3bn in the twelve months to the end of September, compared with a nine-year high of £23.5bn in late summer. The number of deals fell from a high of 155 in May and June to 132 in September.

Price/earnings ratios also showed a declining trend and are now at levels not seen since 1996. They are currently at just below 11, compared with more than 12 or 13 for most of the past five years.

Mark Nicholls, managing director of Royal Bank Private Equity, said: ‘The decline in the number of deals and downward trend in p/e ratios revealed by the UK Watch statistics confirms the trend we have seen in the market over the last six months when growing uncertainties had already made their mark on the valuations that private equity players are putting on target companies.’

He said the situation appeared to have deteriorated since the middle of September but insisted business had not ground to a halt and there was still some activity.

‘In spite of an unpredictable economic situation, deals are still being looked at and investments made; there will continue to be companies seeking to dispose of non-core businesses and investors who see growth opportunities in them,’ Nicholls said.

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