Statistics from CMBOR, the pre-eminent provider of analysis on the UK buy-out market founded by Barclays Private Equity and Deloitte, confirm that 2007 is a record year for UK buyouts at a remarkable £38.5 billion for the first nine months, which is already 45% higher than the whole of 2006 (£26.5 billion).  Quarter three deals of £14.9 billion is the second highest quarter on record surpassed only by the £19.7 billion in quarter two, no other quarter on record has exceeded £10 billion.

Yet as the market commences the final quarter, it looks like this record year for buyouts might be remembered for very different reasons.  The correction in the credit markets in the third quarter and the likely knock-on effects could see buyout activity in the fourth quarter being significantly depressed, as debt availability for larger deals dries up.  

Tom Lamb, Co-Head of Barclays Private Equity, said: "For the larger buyout market the situation looks difficult because of the significant overhang of un-syndicated debt in some of the larger deals.  I do not expect there to be many £1 billion deals announced until we are well into 2008."

Lamb continued: “Despite the recent credit squeeze, for a well-priced and well-structured mid-market deal, there is still an appetite among banks to fund the debt, often on a club basis.  The UK mid-market should continue to be active into the fourth quarter."

Mark Pacitti, Corporate Finance Partner at Deloitte, added: “A review of deal pricing reveals the extent by which the top end of the market has overheated – average debt multiples in the mid-market have remained constant at 5.2 whilst those debt multiples in the larger deals have risen by 18% in the last year (9.1 to 10.7).

Pacitti continued: “A further consequence of the credit crunch on private equity is the likely drop in both public to private deals (£18 billion and 47% of this year’s deal value), as well as reduced exit opportunities – secondary buy-outs have been the preferred exit route in recent years, but they do rely on strong debt markets. However, the door is now opening for trade buyers.”

End of Q3 2007 highlights

• Exit value is down 33 per cent on last year at £18.2 billion from £27 billion, a strong contrast to this year’s buy-out value of £38.5 billion.
• Secondary buy-outs have accounted for over half of all exits over £250 million although a slow down is predicted in light of reduced debt availability making way for more trade buyers should pricing ease. Secondary buy-outs account for 63 per cent of exit value.
• Public to privates contribute to half of the buy-out market at £18 billion worth of deals this year.
• Fund raising has continued to be very high in 2007, almost reaching £15 billion and matching the rate set in 2006 when a record total of £20.2 billion was raised.
• Buy-out share of the total UK M&A value is close to two thirds of the market.
• Boost to the IPO market with signs of a positive outlook.
• Business and support services and TMT sectors have greatly increased at £5.6 billion, up 55 per cent and £5.2 billion, up 58 per cent, while Leisure is significantly down by 80 per cent.

For further information on supporting tables and graphs, download our press release Credit crunch brings private equity record year to a halt. (PDF, 123KB)

Ends

Notes to Editors
The Centre for Management Buy-out Research (CMBOR) was founded by Barclays Private Equity and Deloitte at Nottingham University Business School in 1986.  CMBOR is world-renowned as the long-standing leader in providing robust analysis of the buy-out market.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.  Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ("DTT"), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other's acts or omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.