European buyouts hit hard by regional debt crisis

Sun Jul 8, 2012 7:01pm EDT

* Buyouts total 9.1 bln euros in Q2 -CMBOR study

* Sellers adopt wait-and-see stance on disposals

* British buyouts 3.3 bln eur in Q2, Nordic 2.5 bln eur

By Simon Meads

LONDON, July 9 (Reuters) - Private equity dealmakers are sitting on their hands, unwilling to sell their companies until the euro zone stabilises and debt markets improve enough to support higher prices, according to a study from the Centre for Management Buyout Research (CMBOR).

The impasse is leading to a downturn in new deals and hindering the sale of companies between rival private equity firms, an activity that can often account for around half of transactions in the industry in a year.

The value of European buyouts totalled 9.1 billion euros ($11.3 billion) in the second quarter, a 34 percent fall on the first three months of the year, and almost 60 percent down against the second quarter of last year, the study, sponsored by Ernst & Young and private equity group Equistone, showed.

"Sellers remain cautious and many are adopting a view of wait and see, until the landscape across Europe shows more signs of stabilising in the long term," said Sachin Date, Europe, Middle East, India and Africa private equity leader at Ernst & Young.

Hopes of a sustained recovery among private equity dealmakers, after a flurry of large deals in the first half of 2011, were dashed later in the year as investors fretted about the future of the euro zone and as debt markets froze.

Since then, buyout activity has been patchy.

Some large disposals, such as KKR's deal to sell a 45 percent stake in pharmacy group Alliance Boots to U.S. rival Walgreen for $6.7 billion, have grabbed the headlines.

However, selling companies remains difficult, private equity professionals and their advisers say.

"What I have observed this year is while you are able to sell a good asset in almost any condition, you find it much harder to sell a so-so asset in these conditions," said 3i CEO Simon Borrows when he outlined the private equity group's new strategy last month.

Britain, seen as a hub for private equity activity in Europe, accounted for 3.3 billion euros of deals in the second quarter, while Nordic markets generated a combined value of 2.5 billion, according to the CMBOR research.

Despite its strong economic position, the value of buyout deals in Germany fell to just 200 million euros in the second quarter, the data showed, as owners refused to sell companies for prices that did not meet their expectations.

But some are hopeful of a pick-up in activity towards the end of the year.

"Continental Europe continues to suffer from unresolved macroeconomic uncertainties. However, with some important political elections behind us, this could improve towards the end of 2012 as the euro zone crisis stabilises," said Equistone director Christiian Marriott.

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