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Strong start to 2014 for Yorkshire buyout market

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The combined value of private equity-backed deals in Yorkshire reached £619m in the first three months of 2014 – the second highest quarterly total since Q1 2010 – representing a strong start to the year for the region’s buyout market.

According to the latest data from the Centre for Management Buyout Research (CMBOR), sponsored by EY and Equistone Partners Europe Limited, the Yorkshire market’s performance during Q1 2014 was amongst the best in the country, behind only London (£1.6bn) and the South East (£800m) in terms of value.

Buoyed by the buyouts of Leeds-based businesses Callcredit Information Group and Zenith, the total value for Q1 2014 exceeded the buyout values for the previous three quarters combined (Q2 2013: £348m, Q3 2013: £23m, Q4: £130m), but did not surpass the figure for Q1 2013 (£714m). Four deals completed in Q1 2014, down from five in Q1 2013.

The UK buyout arena maintained its momentum in Q1 2014. 47 deals worth £4.3bn completed during the period, compared with 41 transactions with a combined value of £3.5bn in Q1 2013.

The country was the clear leader in the wider European private equity market, accounting for 40 per cent of all buyout value in Q1 2014.

Mark Clephan, M&A director at EY in Yorkshire, said:

“The Yorkshire private equity market’s strong performance so far in 2014, which has been underpinned by two high quality mid-market transactions, suggests that confidence amongst sponsors and corporates is improving.

“Given the improving debt market conditions, the number of well capitalised private equity firms operating in the North and the strong pool of Yorkshire-based corporates entering new phases of investment as the economy improves, there’s reason to believe that the regional buyout market’s recovery can continue as the year goes on.”

Steve O’Hare, partner at Equistone Partners Europe, said:

“The Yorkshire buyout market still has a lot to celebrate.

“The industry proved to be resilient after the recession and we’ve seen a good run of exits in recent years with sizeable returns.

“There have been a couple of big-ticket deals from the quarter that demonstrate the quality of businesses based in the region.

“In particular, the sale of Callcredit to a Chicago private equity firm shows how UK assets remain attractive to overseas buyers.

“With this, and a number of other deals in the pipeline, the remainder of 2014 looks strong.”

The popularity of the public markets as a preferred exit route continued in Europe the first quarter of this year; with five IPOs achieving a total exit value of £5bn – the highest number of IPOs for this quarter in Europe since 2006.

The IPO value, at £2.5bn, is also the second highest on record after £5.2bn in Q4 2013.

This continues from where 2013 left off, with a total £23.4bn raised through 10 IPOs. Of the total number of IPOs this year across Europe, five out of the seven listed in the UK, showing the strength and attractiveness of the UK public markets.

With the industry working hard to clear its exit overhang, the opening of public markets has helped oil the wheels of this process, but the downside for private equity is that this is having a material impact on the secondary buyout market (SBO). In the UK, both SBO volumes and values remain low at £782m this year, compared to £4.7bn in 2013.

The largest exit in Q1 this year was from Pets at Home at £1.2bn.

Clephan said:

“While the opening of the public markets is helping the industry reduce its exit overhang, the increasing popularity of IPOs as an exit route is increasing competition for private equity-backed assets.

Private equity houses looking to acquire assets through SBOs are facing stiff competition from the high multiples being commanded by IPO valuations. This is having a significant impact on SBO activity and as a result both SBO volumes and values are down quite considerably.”

He added:

“It is likely that the second quarter will see much of the same type of activity experienced in this quarter in Europe.

“Sell side activity will continue to dominate with IPOs being a significant and attractive exit route.

“This does present a challenge however for some investors who, while reaping the benefits of distribution, are facing the challenge of where to reinvest capital so they can put their money to work.

“It is also encouraging to see a healthy deal pipeline with a number of deals likely to complete over the next three months.

“Whether this upsurge in activity over the coming months contributes to the European private industry being back in full recovery mode remains to be seen, but the signs are certainly positive.”

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