LDC consolidated its leading market position with 18 deals completed
The latest Unquote-LDC Regional Mid-Market Barometer, which tracks private equity deal flow and sentiment in the sector, is released today and reveals the value of deals rose again last year to almost £5.4 billion.
In contrast to PE activity in Europe, where deals dropped off dramatically after a solid first half, there was a marked increase in deal flow in the second half of 2011 in the UK, largely thanks to a strong performance in the SME deal arena, which meant completions were up compared to the previous year.
This has given a firmer platform for the UK mid-market to look for further growth in 2012 – 26 deals have already been completed in January – and may help lead the UK on the recovery path.
Highlights
- Total of 166 deals completed worth £5.4 billion, up 4.5% on 2010
- Second half of 2011 saw marked increase in mid-market deals, with the smaller deal bracket (£5-£50m) performing strongest, with deal value up 22% to £2.4 billion
- Midlands saw the most robust growth across all deal ranges, up in both volume (29%) and value (11%) with the North also registering gains
- London remains the most active region, with 36% of total mid-market deals by volume and 41% by value
- Services was by far the most dominant sector, accounting for 45 deals in 2011, close to 30% of all deals in the mid-market and worth almost £1.3 billion
- Deal flow recovered strongly in Industrials, up 70%, was robust in TMT, with both the number and value of deals rising with Consumer the weakest sector
- LDC, the private equity arm of Lloyds Banking Group, was the most active house completing 18 deals, up by 50% from the previous year
Smaller deal range underpins mid-market growth
Undoubtedly the mid-market was hit by the deepening Eurozone crisis and a weakening in business confidence last year, which made vendors re-think and valuations more problematic. This hit the larger deal category (£50-£150m) hardest. However, for the full year deals in this range remained unchanged at 38, while the mid-market’s overall performance was bolstered by the smaller deal bracket (£5-£50m), which recorded a small rise in volume of deals to 128, but a much greater 22% increase in value to £2.4 billion.
Regionally the picture very much depended on deal bracket, with London and the Midlands showing growth in the larger deal size, while in the smaller deal category all three regions apart from London, which saw an 18% drop in deal completions, experienced a rise in transactions.
Services sector shows the way
Although the Services sector was by far the strongest, there was a bounce back in the Manufacturing/Production sector too, with a rise of over 70% in deals to 38 with a value of £1.4 billion. The Consumer sector fared worst, with a 25% fall in transactions to 29 worth just over £1 billion.
LDC consolidates leading market position
Among firms active in the mid-market LDC continued to lead, completing 18 deals across a range of sectors and regions. In the larger deal arena it was the more established houses that were visible, while in the smaller deal bracket it was more fragmented with a greater range of firms chasing deals.
Regional Outlook
Northern region – favours companies with export potential yet low Eurozone exposure
In the North, there is a real sense that the market is beginning to tick again, with a total of 40 deals worth £1.23 billion. Though deal flow was driven by activity in the smaller transaction bracket, the average deal size at £95 million was the highest for four years. A common thread for companies that secured PE investment is their exposure to overseas markets and longer-term export potential.
As John Swarbrick, Senior Director of LDC in Yorkshire/North East points out: “The volume of investable businesses coming to market does appear to be gradually increasing as we move deeper into 2012 and there is a sense that some vendors are finally reconsidering their plans to sell assets given the market appetite to transact, particularly those with export potential and lower exposure to issues in the Eurozone.”
London - remains the most active
The Capital again was the most active market (60 deals worth £2.23 billion) and though overall deal flow was marginally down, there was a 9% rise in the value of £5-£50 million deals, equating to a substantial rise in average deal values.
As Daniel Sasaki, MD of LDC London notes: “The overall decline in the regional totals for London I believe masks a better performance than appears at first glance. Though deal volume was down in the lower bracket deal value was up and in the larger deal bracket London was the only region to see a rise in both metrics.”
Midlands - powers ahead
The Midlands saw the most robust growth across all deal ranges in both volume (22 deals) and value (£707 million). One of the key factors was the rebound in Industrials.
“Manufacturing and specialist engineering will remain firmly on our investment radar in 2012 and we have committed £200 million of new investment funding to this sector, says Martin Draper, UK New Business Managing Director. These positive trends are set to continue in 2012 as ‘manufacturing and engineering’ businesses can benefit from demand from emerging economies, and export demand based on strong trading relationships and a relatively weak currency.”
South – TMT holds the key
In the South (44 deals, worth £1.25 billion) rising deal flow in the smaller deal bracket helped compensate for declines in the upper-market.
As far as sectors are concerned, Yann Souillard, MD of LDC’s South team believes that TMT is the one to watch: “It will be interesting to see if there is an increase in activity from the high proportion of technology-led firms in or region in 2012 which may be looking to take advantage of consolidation opportunities through buy-and-build strategies.”
Summing up the statistics Darryl Eales, Chief Executive of LDC, commented:
“Overall the rising tide of optimism and UK mid-market deal flow in the first half of last year ebbed away in the second six months of 2011 as economic conditions worsened, but both in value and volume the totals were encouragingly still marginally higher than the previous year, driven by the smaller end of the market where weak lending conditions were not such an issue and where vendor pricing had also adjusted to more reflect realistic levels.
For 2012 the outlook remains uncertain with commerce dominated by the Eurozone crisis and the need for greater business confidence. Positive developments on both would be very beneficial.”
For further information please contact:
Richard Morgan Evans T: 0207 629 9101
Morgan Rossiter M: 07751087291