KPMG: UK private equity deals to slow

KPMG warns market to expect a slowdown in UK private equity deals following sluggish fourth quarter

The number and value of UK private equity deals plummeted in the fourth quarter with the slowdown expected to continue into 2008, KPMG has asserted.

The number of UK buyouts valued at over £10m fell to 25 in the final quarter of 2007, compared to 51 for the same period in 2006, KPMG’s Private Equity Group said. Similarly, the average value of UK private equity deals fell from £154m to £94m year-on-year.

Following the Q4 slowdown and summer credit crunch, KPMG now believes 2008 deal values could be just half of those seen in 2007, and even fall to 2002/03 levels.

KPMG’s downbeat assessment comes despite recent figures from investment bank Regent Associates indicating the number of M&A deals in the UK tech sector dropped only slightly in Q4 (CRN, 24 January).

KPMG added that the drop in the volume of transactions indicates that the credit squeeze has not just hit mega buy-out deals. It claims bank lending to sub-£100m buy-outs became more ‘complex’ in November and December, with many bank clubs now being required for even modest levels of debt.

Michael McDonagh, corporate finance partner in KPMG’s Private Equity Group said: “Despite 2007 being a record year in terms of the total value of private equity deals completed, this was predominantly driven by the £12 billion bid for Alliance Boots from KKR and subsequently activity in the fourth quarter of the year dropped off significantly.

“Though the figures do not bode well for MBO activity in 2008, it is clear to me that with careful advice and the correct structuring, it is still possible to secure debt and transact deals in the mid market - the $970 million loan for chemical business Almatis at the end of 2007 proves that deals can still fly.”