The Midlands private equity-backed buy-out market grew by more than 20 per cent last year – despite a nationwide fall.
While there were only nine deals done in the West Midlands last year, the total value of £420 million rose from £349 million in 2012.
However, experts say that only tells half of the story, with almost all the activity coming in the second half of the year as a return to growth boosted the sector.
Nationally, deal value fell to £13.5 billion, from £16.4 billion in 2012, after the number of deals fell from 206 to 183, according to data published by the Centre for Management Buy-Out Research.
Phil Griesbach, partner at the Birmingham office of Equistone Partners Europe, which co-sponsored the research with EY, said there was evidence activity was picking up.
The West Midlands had started the year slowly with no deals recorded involving businesses headquartered in the region during the first quarter of the year and only three in the second quarter. This compared with a total of seven buy-outs during the first half of 2012.
He said there is “renewed overall confidence” now, adding: “We have come through a period of business and economic uncertainty with shareholders, banks and private equity houses shaking off the crisis of confidence that goes back to 2008.
“There are now strong indications that confidence is returning to the economy and with that, opportunities are emerging. That said, already we see this confidence manifesting itself in some aggressively structured transactions, so we need to remain selective.”
The rise in private equity-backed buy-outs last year compared to a fall in East Midlands, to £391.5 million, compared with £438.7 million in 2012.
The largest private equity-backed deal in the West Midlands was the Busy Bees Nursery takeover in October with an estimated value of £220 million. Nationally, the largest deal recorded was B&M Retail in January in the North West – with a value of £964 million.
John Houlden, transaction support partner for EY in the Midlands, said signs of improvement are showing.
He added: “We’ve been seeing signs of regional economic recovery for a while now and the latest CMBOR figures reveal a positive outlook so it certainly seems conditions are improving.”
The most active sectors nationally have been business and support services at £36 million, manufacturing at £32 million and leisure at £28 million.
Looking forward to 2014, Mr Griesbach said: “With the forward deal pipeline looking far healthier going into 2014, there are a number of reasons to be cheerful.
“We have focused our efforts on change of ownership requiring an investment of between €25 million and €125 million of equity in businesses with enterprise values of between €50 million and €300 million.
“That is a strategy that has delivered long term success.
“Equistone has completed 16 deals in the past 12 months including in the Midlands taking a majority stake in Northamptonshire-based Whitworths, the UK’s largest supplier of dried fruit, nut and seed products.
“The trajectory is certainly upwards but risks remain, consumer confidence can be fragile and the impact of rising interest rates is yet to be seen.
“Our long term strategy has served us well, and we will continue to look for strategic businesses that have the growth potential and management teams to adapt to whatever challenges arise,” he said.
