West Midlands deal numbers on track – but values down…
The number of buy-out and buy-in deals recorded in the West Midlands during the first half of 2014 was the same as in the first half of 2013 with the region on course to match the total recorded during the whole of 2013 – but the value of those deals is down year on year, according to the latest statistics.
Figures from the Centre for Management Buy-Out Research, sponsored by Equistone Partners Europe Limited and EY, show that in the first half of the year, there were four deals in the region – the same as that recorded in the first half of 2013 – with a total value of £46m (2013 half year: £64m), and an average value of £11.5m (2013 half year: £16m). This contrasts with nine recorded during the whole of 2013.
Nationally, the volume and value of deals were up, reflecting an increase confidence of both private equity investors and banks to commit capital – 103 deals have been recorded in the first half of 2014 compared to 87 deals in the first half of 2013. The value at the end of the first half of the year is standing at £6.8bn compared with £6.2bn in the same period last year.
However, and perhaps surprising, buy-outs dominated the overall UK merger and acquisition market in the first quarter of the year, with buyouts accounting for 86% of all activity in the first quarter of 2014 – reflecting a slow start for UK corporate merger and acquisition activity.
Each of the four deals completed within the West Midlands in the first half of the year were below £50m, but covered sectors including business and support services, food and drink and retail.
Phil Griesbach, partner at the Birmingham office of Equistone Partners Europe, said that whilst the volume of completed deals remained low, there was a clear pick up in overall activity, with regional and national pipelines looking strong.
“This may well turn out to be a year of two halves to some extent. So far we are witnessing more of the same from 2013 where deal volumes were generally low, but the current level of activity should result in a clear uptick in the second half.
“Record funds have been raised by private equity over the last 18 months, which underpins a strong appetite to invest in new transactions. Activity is high, but private equity continues to face competition for assets from a strong IPO market and continued appetite from trade (particularly overseas corporates). That said, I would expect 2014 to end significantly better than 2013.”
John Houlden, Transaction Support Partner for EY in the Midlands said: “The West Midlands buyout market’s slow start to 2014 didn’t improve in the second quarter. It’s evident that a greater flow of high quality, larger businesses coming to market is vital if the region is to get close to last year’s performance, which saw total deal value reach £420m.
“Despite wider economic improvements, the West Midlands private equity arena still faces challenges, including competition from domestic and overseas trade buyers – who are again looking to invest in acquisitions – and the attractive IPO market, which could diminish the pool of mid-market opportunities for private equity.
“However, our own pipeline, alongside good debt market conditions, the high number of Midlands-based corporates entering new phases of investment and increasing confidence amongst the corporate finance community, suggests that the region’s buyout market can pick-up during the second half of this year.”
Nationally, the upper mid-market has started well with ten deals being recorded in the £250 – £500m sector compared with nine for the whole of 2013 – but there have been no £1b plus UK buy-outs since 2012. The largest deal completed during the second quarter of 2014 was Rexam Pharma Devices and Prescription Packaging at £490m.
In terms of exits, five have been recorded to date in the West Midlands with a total value of £822m – including the floatation of Willenhall-based Poundland for £750m during March and a key driver of the regional figures, as well as being one of a number of high profile national floatations completed this year.
Nationally, IPO values have achieved record levels. There have been 16 IPOs this year already beating the 2013 total of ten. IPO value at £10bn is already a record.
Mr Griesbach said that the exit market was buoyant both nationally and regionally.
“The West Midlands’ exit total value at £822m is already around three times the value achieved in 2013 when at the end of the year it stood at £285m.
“The exit market looks to be fruitful given a very competitive funding landscape from lenders and PE players – but this creates its own issues for new investments. The significant and stand out driver so far this year has been IPOs.”
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