The buy-out market is set to blossom this spring according to preliminary figures released today by the Centre for Management Buy-out Research (CMBOR), the leading provider of analysis on the UK and European buy-out markets.   Sponsored by Barclays Private Equity and Deloitte, the statistics paint a rosy picture, with buy-out values reaching £5bn – resulting from 154 deals – in the first quarter of 2005 alone.  However, dark clouds – in the guise of the debt bubble and new tax rules – are looming on the horizon and could lead to a unsettled private equity market for the rest of 2005.

Mark Pacitti, Corporate Finance Partner at Deloitte, comments: “So far in 2005, the buy-out market has performed strongly.  Figures for the first quarter are much stronger than the same period last year and include another raft of high value secondary deals, often fuelled by the availability of aggressive stapled debt packages.  However, this bright start to the year may be destined to fade if the availability of debt packages starts to decline.  If the banks get nervous, reduced debt packages could have a negative impact on both deal pricing and transaction volumes.”

Debt is not the only unsettling factor threatening the private equity market at the moment. The Inland Revenue has recently announced that it intends to eliminate tax relief on private equity loan stock. 

Tom Lamb, Managing Director UK at Barclays Private Equity, went on to explain: "It appears that the Inland Revenue’s decision could reduce private equity returns by circa 10 per cent and this will definitely have an impact on the prices private equity houses are prepared to pay for businesses. In terms of how this is likely to affect deals which are currently work in progress, there is likely to be hiatus with private equity teams downing tools.  At the very least, there will be a major impact on the buy-out market in the second quarter."

Key findings:

• While value is higher in Q1 2005 compared to Q1 2004 (£5bn and £4.7bn respectively), deal flow is well below with only 154 deals completed this year to date, compared to 185  in the same period last year. NB. The total figure for the UK buy-out market in 2004 was £20.4bn from 685 deals
• Mega deals, deals valued at over £100m, continue to impact the market in Q1 2005 with 10 already completed, making up nearly 80 per cent of deal value year to date.  The two largest deals this quarter are:
   - Warner Chilcott – £1.6bn public to private (PTP) buy-out (Jan)
   - Travelex – £0.7bn secondary buy-out (Feb)
• 48 per cent of the buy-out market value (£2.4bn) has been driven by three public to private deals (Warner Chilcott, NHP and Countryside Properties).
• Half of the top 10 deals in Q1 2005 were secondary buy-outs.  See table 4 for a list.

Ends

Notes to Editor:
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.

Tom Lamb
Barclays Private Equity 
Tel: 020 7773 2541 / 07770 613 447

Mark Pacitti
Deloitte    
Tel: 020 7303 5871 / 07768 574 631

Tricia Defty / Jane Kirby, Lawson Dodd 
Tel: 020 7535 1355 / 07930 353 476 / 07990 543 886

Sorrelle Cooper
Deloitte   
Tel: 020 7303 4820 / 07932 078 218