| LONDON, March 28
LONDON, March 28 Buyout firms are finding it
harder to take part in mergers and acquisitions as the lure of
stronger equity markets persuades more funds seeking to exit
assets to try their luck with a public share sale or turn to
cash-rich corporate buyers.
Private equity-backed mergers and acquisitions (M&A) fell by
almost a third to $55.2 billion from a year ago, Thomson Reuters
quarterly data showed on Friday.
European private equity firms accounted for 8 percent of M&A
deals in the year to date, down from 10 percent from the same
period last year and the lowest since 2011, although the value
of private equity-backed deals did rise in the region.
"The bottom line is that in many sectors private equity is
struggling to compete with the public markets," said James
Simpson, Head of Sponsor M&A at UBS. "Assets that would
naturally have come to private equity are going to IPO."
The MSCI World Price Index surged 24 percent
last year. That has brought a rash of companies to market as
they seek to capitalise on buoyant public interest, limiting the
deals available for buyout firms.
Private equity firms are also grappling with asset price
Valuations have risen, partly due to a scarcity of assets,
because of companies turning to IPOs, but also due to a growing
amount of undeployed fund capital which leaves private equity
funds paying out more as they hunt for ways to spend cash.
A report by Bain & Company this month found that undeployed
capital, or dry powder, hit $1 trillion at the end of 2013,
pushed up by investors seeking returns in a world of low
"Multiples have gone up," Simpson said. "You have to
acclimatise to paying bigger prices, and that takes a bit of
As well as expensive assets, funds are also shying away from
competition with huge corporate cashpiles built up since the
Last year, GlaxoSmithKline scrapped a plan to sell
its drinks businesses Lucozade and Ribena in an auction which
would have included private equity firms when Japan's Suntory
Beverage & Food muscled in.
"Whilst (investors) would continue to say this is a
fantastic environment in which to exit businesses, it's actually
still proving to be a challenging environment in which to deploy
new capital," said Alasdair Warren, head of European Financial
Sponsors Group at Goldman Sachs.
"The IPO markets are so strong and the multiples are so
high, that it is very difficult for sponsors to compete."
But despite the squeeze, private equity firms are confident
that the rush to IPO will not last forever.
"It is likely that the IPO markets will remain open for some
time but how long it will last is hard to tell," said Lionel
Assant, Senior Managing Director and European Head of Private
Equity at Blackstone.
"Public markets rightly demand a proven management team and
a clear strategy for growth from any company floating."
Goldman Sachs led the global rankings for M&A advisor
banks with a 46.3 percent market share, while JP Morgan
was top for European deals with a 32.4 percent market share, the
There have been 271 deals in Europe so far, an increase of
6.7 percent year-on-year. But the value of transactions
including net debt has soared 24 percent to $12.9 billion over
the same period, the data showed.
(Editing by Elaine Hardcastle)