The UK private equity market dropped to its lowest level for over 13 years in the fourth quarter of 2008 according to data from the Midlands-based Centre for Management Buy-out Research (CMBOR).
The value of buy-outs reached just £994 million in quarter four compared to £5.6 billion in quarter three and £5.7 billion in the fourth quarter of 2007.
CMBOR, the UK’s leading provider of research and analysis on private equity, sponsored by Barclays Private Equity, found deal value in quarter four had dropped back to levels last seen in 1995.
Phil Griesbach, director at Barclays Private Equity in Birmingham, said: “Last year started off in good shape with the strongest first quarter on record. Subsequent quarters however all witnessed marked falls in buy-out activity as the market squeeze has tightened.
“Analysis of deals by sector, while broadly reflecting the downturn, also reveals some interesting trends. Deals in the business and support services sector have increased to a third of total value, up from 16 per cent in 2007, reflecting investors’ desire for opportunities in resilient sectors. The retail sector, on the other hand, has experienced a huge drop in its share of buy-out activity from 31per cent in 2007 to just three per cent last year. This is a consequence of issues in the wider economy and concerns about the buoyancy of consumer spending on the high street.”
Deals across all value ranges have seen significant decreases in the fourth quarter.
Deals in the sub-£10 million bracket have fallen by two fifths in the last quarter, while deals in the £10-£100 million range have fallen by nearly 60 per cent. The largest drop has been in the £100-£500 million which has all but ceased. Mr Griesbach added: “Where the market goes from here is difficult to predict. If banks return to the buyout market and business sentiment begins to improve, buy-out activity could increase in the first half of 2009, but there is still a lot of uncertainty out there. We are seeing a number of interesting opportunities but pricing in the risk faced by individual companies in their markets is difficult.” Private equity deals have dried up along with the level of liquidity in the market.
In contrast, the family and private buy-out volume has risen steadily over the last five years, reaching 43 per cent at the end of 2008, up from 32 per cent in 2004. The average deal value in 2008 reached £35 million, down from £68 million in 2007.