2011 UK Private Equity Transaction Report

2011 UK Private Equity Transaction Report Contents Pg Introduction 3 Analysis Transactions Breakdown 4 New investments by sector 5 Transactions by size 6 Exit Breakdown 7 Conclusion 8 Alphabetical listing of investments observed 9 Introduction Welcome to Marble Hill Partners research and analysis of activity in the UK Private Equity market in 2011. As a specialist interim management and executive search consultancy for Private Equity backed businesses it is in our own interest to monitor where and with whom MBO/MBI’s, SBO’s, Trade and IPO exits are completed. The data collected has been collated from Trade Press and Investor Press Releases and whilst we cannot guarantee that our research is 100% accurate (not all deals are publicised and in many cases values are undisclosed) we are keen to share our research and observations with our industry. We have only made note of deals with transaction sizes of £5 million and above. The 190 new investments completed in 2011 were completed by 113 different investment houses suggesting that there have been a good number of investors able to deploy capital in 2011. That said only 18 houses managed to do 3 deals or more and only 5 houses were able to complete upwards of 5 new investments. By far the leading investor this year, by number of UK investments, is LDC which completed 16 new investments. In this summary you will find an alphabetical index of all the deals recorded and a number of charts and graphs which reflect some of our observations. If you completed or know of transactions which haven’t been included then please do let us know and we will update the report for future reference. 2011 got off to Transactions by month 25 a significantly . 20 better start 15 than 2010 New Investments 2011 10 New Investments 2010 and with the exception of 5 the tail end of Q1, 2011 Exits 2011 deal activity was 0 Exits 2010 consistently higher than that of 2010. Whilst fluctuating, generally in line with wider economic confidence, we didn’t see Exits during 2011 remained at a fairly consistent level averaging just less than 4 per month, and were only slightly up the tailing off that on 2010’s figures suggesting that investors are only exiting businesses that either they have to, due to distress or fund occurred in Q3 and Q4 of constraints, or those which are providing very strong returns which they can demonstrate to LP’s. Broadly it would 2010. appear that the majority of houses are holding on to investments until the wider economic outlook is more stable and valuations return. Transactions by type 2011 / 2010 The total number of transactions completed in 2011 91 was 236, a 50% increase on 2010’s 157. 72 53 MBO’s still form both the largest percentage of new investment activity as well as the 45 39 largest percentage of transaction activity in general. 34 27 2011 18 SBO’s formed 22% of all transaction activity in both 2010 and 2011 and whilst providing 2010 4 3 3 0 1 3 the second largest area for new investment they are also the most frequent exit route. The relatively small percentage increase in Trade Sale activity has picked up from a further drop in IPO’s. New Investments by Sector During 2011 it was evident that Consumer remained the most popular macro 46 sector for PE investment, that said the gap has narrowed. 39 36 35 Both TMT and Manufacturing have overtaken 28 26 Business Services with big leaps in investment 17 activity. 12 11 12 12 8 The numbers would suggest mainstream investors are switching to areas of 6 5 5 5 2011 3 2 the economy most likely to be supported by the current government. 0 0 2010 Consumer Breakdown 2011 Consumer Ecommerce 4 Services 4 Retail 19 Leisure 9 TMT Breakdown 2011 FMCG 10 Hardware 3 Telco 4 Software 13 Media on and With both the Consumer and TMT sectors actually covering a wide range offline 7 of businesses these charts demonstrate the most attractive sub-sectors. IT Services 8 The research suggests that in both sectors investors are being drawn to business with clearly defined specialisms and stable customer bases as well as truly innovative businesses demonstrating real prospects for rapid growth. Capital Invested by sector (extrapolation of data collated) The graph suggests that despite the surge in the volume of Manufacturing deals the total amount of capital deployed is much Consumer £8.1bn less than other comparable sectors suggesting that investors are Manufacturing and Engineering £1.6bn opting for smaller niche manufacturing businesses. This is contrary to TMT £3.9bn Consumer where it would appear that investors are targeting larger Business Services £3.2bn consumer businesses, such as Quorn and Wiggle, with particularly Healthcare and Education £2.3bn strong brands and market positions, Financial Services £2.7bn Construction and Property £140m Financial Services remains the sector Utilities £125m Transport and Distribution £480m with the highest mean transaction Oil / Gas and Renewables No Data value at £228m. These figures were extrapolated from the disclosed transaction data to estimate the EV of undisclosed transactions. The statistical accuracy is above 90% and so has been used to represent trends. Comparing the volume of transactions completed at different Transaction sizes 2010 /2011 investment levels indicates that 2011 saw a significant number of 84 investors unwilling to release data on the size of transactions. 77 Of the 236 transactions completed in 58 2011 98 did not release details of the transaction size or EV. 2011 2010 23 Speaking to investors and management teams we think this is due 17 15 to investors completing more all equity deals and accordingly 8 7 8 8 6 4 being reluctant to release information. 0 1 Undisclosed £5 - 50m £51 - 100m £101 - £201 - £501 - 1bn £1bn + 200m 500m Trade Sale Exits 2011/2010 12 12 With trade sales forming 45% of all exits in 10 10 8 2011 they still represent one of the 7 6 cleanest exits for a PE investor. 2 2 2 2 1 1 1 1 0 0 0 0 0 2011 Breaking this down by sector suggests that TMT and Business Services trade 2010 buyers have been the most active with the later seeing a significant increase in trade sale exits; further evidence that investors are cooling on the sector. The SBO route is still the most popular when aiming to achieve an exit, accounting for 54% of exits compared to 53% in 2010. It would appear that trade buyers have regained their appetite for larger businesses in 2011. Whereas in 2010 most exits over £100m went to a secondary buyer. Conclusion Despite the on-going economic woes of Europe and the UK’s relatively flat growth in 2011 Private Equity is continuing to invest in good businesses and realise investments where there is an opportunity to do so. The market is by no means buoyant but is showing positive “like for like” trends compared to 2010. It is also apparent that investors in the UK are deploying capital in areas of the economy that the Government has highlighted as being key to recovery, such as niche manufacturing and TMT industries, and hence where there is likely to be government support over the next couple of years. An increase in Growth Capital investment has cemented the sub £100m EV space as by far the most active part of the UK market and it would seem that, despite one or two headline grabbing deals, the UK is still some way from seeing a return to a significant number of “mega” buy-outs. Looking forward to the Olympic year; the UK PE market remains a tough and competitive place to operate with a challenging debt market and a myriad of investors under increasing time pressure to deploy capital with few opportunities to do so. In 2012 we believe we will see an increase in investment activity in early stage growth opportunities and turnaround investments, whilst prized assets with further high growth potential (especially international) will continue to attract premiums.

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