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M&A activity in state of flux

THE days of highly leveraged private equity deals are over, financial research group Mergermarket declared as it published its 2009 round-up yesterday.

Reporting a plunge in the value of transactions carried out in Europe last year, the firm predicted “sensible” mid-market deals would replace headline-grabbing mergers as the norm in the post-crisis landscape.

Just under €30bn (£27.2bn) of private equity deals were carried out in 2009, according to Mergermarket. The figure is a year-on-year slump of 64 per cent, with buyout houses including CVC Capital Partners and Apax carrying out 45 per cent fewer deals across the continent in total.

Of the mergers completed, only four per cent involved a target company with a market capitalisation of more than €500m – less than half the proportion of a year earlier.

Mergermarket analyst Tom Coughlan said: “A ‘back to basics’ approach by the asset class is one of the most significant by-products of the economic downturn and is no bad thing… The heady days of near-free and easy debt are certainly over.”

One banker agreed in principle, saying: “The debt markets are not there to support the leveraged deals of old. This will particularly hit funds which made money out of leverage and multiple arbitrage.”

Simon Walker, chief executive of the British Venture Capital Association, added that mid-market deals had long been the mainstay of the UK industry.

Citing recent job-saving rescues of Crown Paints and DavyMarkham, Walker added: “Small-scale turnaround private equity activity is where we’re going to contribute most to the economy in the next few years provided regulation doesn’t stifle it.”