UK leads the pack as Europe hits its highest level of buyout activity since 2007

Lucy White
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The increase in smaller deals drove buyout numbers (Source: Getty)

In a year which saw Brexit negotiations grind on while a number of European countries held elections, private equity activity in Europe hit a decade-high.

Private equity firms completed 919 buyouts of companies in 2017, up 19 per cent year-on-year and the highest number since 2007's 1,000 deals, according to Unquote data.

The UK drove activity both in terms of the number of deals and their combined value, as 204 of its companies were bought out in private equity-backed transactions for a combined €38.8bn (£34.2bn).

Read more: Heavyweight UK buyout funds take advantage of “frothy” markets to launch record new funds

Low interest rates have meant debt is cheap and readily available to support buyouts. Buyers can "leverage" the deal by paying less from their own funds and more with borrowed money, potentially increasing their returns when they sell on the company.

"Thankfully, while leverage multiples have certainly crept up, we are nowhere near the alarming levels that were seen in the run-up to the financial crisis 10 years ago," said Unquote's head of research Julian Longhurst.

"And, although concerns around high pricing persist, we predict that the market will continue to be lively in 2018 and beyond."

The breakdown

The biggest European private-equity backed deals last year included KKR's £6bn carve-out of Unilever's spreads division, its £4.2bn sale of software company Visma, and the €5bn buyout of German pharmaceuticals company Stada by Bain Capital and Cinven.

Read more: The largest ever buyout of a European software company was just announced – and you've probably never heard of it

CVC Capital Partners, which owns roadside assistance company RAC and Sky Bet, pulled in as the biggest spender in Europe completing 13 buyouts of businesses worth €13bn.

While the UK was still the strongest country in Europe, other countries including the Netherlands, Spain, Poland and Denmark recorded all-time high deal volumes.

Across the board it was the smaller end of the market which drove a rise in the number of deals, as 34 per cent more companies in the €5m to €50m price bracket were bought out compared to 2016.

But the value of the plus-€1bn "mega-deals" jumped by almost 50 per cent in 2017, from €36.9bn to €54.6bn.

A boost to the UK

Although the private equity industry has long been denounced for asset stripping and cutting jobs, new research from advisory firm BDO suggests buyout house ownership might actually be beneficial for companies.

The research, published today, showed private equity-owned companies had increased their revenues by 12 per cent during 2017 to £42bn, while growing their workforces by 8.5 per cent. A hefty 41 per cent of these companies were based outside of London, showing private equity bringing benefits to areas beyond financial centres.

But Jamie Austin, head of private equity at BDO, warned that the government must continue to bear private equity in mind when creating policy.

"As Brexit negotiations finally start to take shape, it’s now more important than ever that the government ensures these dynamic, high-growth businesses don’t fall into a policy gap and that they remain a firm part of the UK’s driving force for post-Brexit growth," he said.

Read more: The UK drove a recovery in European private equity activity this year as UK buyout value doubled

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