Bank crisis sparks drop in mid-market M&A

Sales of privately owned UK mid-market companies fell off in 2008's third quarter as banks took a more jittery approach to lending, research has found.

Figures from auditor BDO Stoy Hayward revealed buy-outs of private firms were down 35 per cent on Q3 2007. The decline was partly attributed to recent rises in interbank lending rates and the knock-on effect this has on mid-market acquisitions.

Survey author Jon Breach told Reuters: "Banks are obviously absolutely paranoid about taking on new risk at the moment."

The survey also revealed that, despite the drop in deals, prices being paid had held firm this year, remaining around the mark of 11.5 times historic net profit. Breach added: "Where somebody is selling from a position of strength, they will only do something if they believe they are getting a decent multiple in the deal."

BDO has predicted the worsening economic climate will lead to a sharp rise in deals next year as distressed sales of companies hoping to avoid collapse increases.

Breach claimed private equity houses were now more willing to buy companies with their own funds in the hope of subsequently refinancing through the debt markets. "The people who will benefit are the people who are liquid and who are sitting on cash," he said.