Although the U.K. buyout market value reached a record level for the third successive year in 1998, preliminary figures from the Centre for Management Buyout Research (CMBOR) confirmed a notable slowdown in the final quarter.
CMBOR reported a total deal value of GBP13.4 billion ($22.016 billion) for 1998, GBP3 billion more than the total for the preceding year. However, the value of deals completed in the fourth quarter of 1998, at GBP2.2 billion, represented a 40% drop from the average of the three preceding quarters.
Sources attribute the decline primarily to decreased activity at the top end of the market during the final quarter. For the fourth quarter, the number of deals with a value of GBP50 million or more fell to 10 from 15 in the preceding quarter and the total disclosed value of these deals was more than halved to GBP1.3 billion from GBP2.7 billion. The large deal market is naturally more prone to quarterly fluctuation than are transactions valued at less than GBP50 million, whose quarterly values have remained relatively stable during the past three years.
Large Deals’ Share Grows in 1998
Despite last quarter’s decline in deal value, larger deals’ share of the overall market value last year increased to 70%, or GBP9.5 billion, from 64%, or GBP6.7 billion, in 1997. Meanwhile, the number of transactions valued at GBP50 million or greater increased to 53 from 47 during the same period.
Although the total value of small deals (valued at less than GBP50 million) showed modest growth, increasing to GBP3.9 billion in 1998 from GBP3.7 billion in the previous year, the 591 completions recorded in this market segment last year represented a decline of 8% from 1997’s tally.
Externally generated deals, investor buyouts (IBOs) and management buy-ins (MBIs) continued their decline during the final quarter of 1998, when 40 such transactions with a total value of GBP1.16 billion were recorded, compared to 50 deals totaling GBP2.15 billion in the preceding three months.
Despite the fact that IBOs and MBIs declined steadily in value after the first quarter of 1998, they nevertheless continued to comprise the greater part of overall market value: With a 1998 combined value of almost GBP8.6 billion, externally generated deals accounted for 64% of the total market, up from GBP6.05 billion, or 58%, in the previous year.
The number of externally generated transactions also declined in 1998, falling to 203 from 245 in 1997; however, the average size of IBOs and MBIs throughout last year rose to GBP42.3 million, an increase of 71% from the comparable figure for 1997; this compares with an average 1998 transaction value of GBP11 million for MBOs.
Negative public market sentiment toward small cap stocks enabled public-to-private deals to flourish last year.
With a total value of GBP2.7 billion, the 32 public-to-private buyouts recorded in 1998 comprised 20% of total market value. According to Chris Ward, head of private equity at Deloitte & Touche Corporate Finance, the market slowdown would have become apparent much sooner had it not been for the money channeled into public-to private deals.
Last year saw 250 buyout and buy-in exits, 20 more than the preceding year. This total included only 13 initial public offerings, compared with the 28 achieved in 1997, a decrease that is unsurprising in the context of a stock market that was largely unreceptive to small cap stocks.
Secondary buyouts and buy-ins emerged as an increasingly important exit route: Private equity houses divested 40 companies through such transactions in 1998, three more than in the preceding year and double the number of secondary buyouts seen in 1994.
A more alarming trend is the increase in buyout and buy-in receiverships: 62 investments suffered this fate in 1998, representing a 32% increase from the previous year’s total and accounting for almost 25% of total exits. The casualty rate among MBIs was 32%, underlining the riskier nature of these transactions than buyouts involving incumbent management.
“The 32% increase in receiverships is a worrying sign of trouble ahead, but a re-run of the recession in the early 90s, when receiverships were both a substantial source of new buyouts as well as the most likely exit for existing deals, is unlikely,” said Tom Lamb, Barclays Private Equity’s U.K. managing director.
U.K. buyout investors entered 1999 with unparalleled levels of capital at their disposal. Therefore, sources say it seems unlikely that the recent slowdown at the top end of the market presages a serious or long-lasting market hiatus.
Mr. Ward predicted that public-to-private deals would continue to boost activity levels for some time to come and that the IBO market will pick up again toward the middle of this year.
Mr. Lamb sounded a more cautious note, in light of increased receivership levels. “Private equity houses are likely to be spending more time on aftercare and less on new investments in 1999,” he said.-Jennifer Jury
BC Partners Wins Cantrell & Cochrane
The year began on a high note for BC Partners, which in the second week of January bought Cantrell & Cochrane Group, Ireland’s leading distributor of alcoholic and soft drinks, in a euro 800 million ($928 million) deal.
The closure of the deal comes after speculation that the U.K.-based private equity group had been eyeing the drink distributor after the start of the new year (BUYOUTS Jan. 11, p. 24).
BC Partners acquired Cantrell & Cochrane from Allied Domecq, which has controlled the distributor for the past 30 years and last year took full ownership of the business by acquiring Diageo’s 49.6% holding.
Although Cantrell & Cochrane is a strong business that has enjoyed 20 years of unbroken growth in sales and profits, it no longer fit with Allied’s exclusive focus on major international brands. Allied, therefore, secured Goldman Sachs & Co. to seek a buyer for the company.
BC Partners paid Allied a cash consideration of euro 734 million for Cantrell & Cochrane, which achieved 1998 sales of euro 496 million.
The euro-denominated deal, involved two tranches of equity, which together comprised some 35% of the total funding, provided by BC Partners and a small number of investors from its current private equity fund.
Cantrell & Cochrane’s existing management team, led by chief executive Tony O’Brien, also will take a stake in the business alongside the other investors.
Donaldson Lufkin & Jenrette and AIB provided senior debt and Intermediate Capital Group supplied a mezzanine loan that accounted for approximately 15% of the financing package.
The company enjoys a strong position in the Irish market, ranking as the leading supplier of both alcoholic and soft drinks to the licensed and retail trades.
The company’s principal brands include Bulmers cider, Ballygowan water, the Club range of soft drinks and mixers, Tullamore Dew Irish Whiskey, Carolans Irish Cream, Frangelico liqueur and the Aperol aperitif. Cantrell & Cochrane also distributes the Pepsi, Schweppes and 7-up Brands in Ireland, as well as spirits and wines from Allied Domecq and other major drinks producers. Following the buyout, Allied Domecq will continue to distribute Cantrell & Cochrane’s products internationally.
Under its current management team, Cantrell & Cochrane made two highly successful acquisitions in Italy. Its new independent status leaves Cantrell & Cochrane free to pursue further acquisitions that would not have been possible while it remained in Allied/Diageo ownership.-J.J.
Doughty Hanson Buys High-Growth Swiss Co.
Doughty Hanson & Co. in early January signed an agreement to purchase Tornos Bechler, a Swiss manufacturer of high-performance automatic lathes. A leader in its field worldwide, Tornos Bechler last year generated a turnover of CHFr 280 million ($204.1 million).
Since Dr. Anon Menth took over as president and chief executive officer in 1995, the company has achieved sales growth of approximately 68%.
No details of the funding structure were available at press time, but Doughty Hanson confirmed that, as is its usual practice, it will groom Tornos Bechler for a public offering in three to five years, working actively alongside management, who will participate in the buyout.
Based in Moutier, Switzerland, and employing 950 people, Tornos Bechler manufactures two major product lines: single-spindle lathes for the production of small precision parts; and multi-spindle lathes for high-volume production of small precision components.
Tornos Bechler’s automatic lathes are principally used by firms in the electronics and microtechnics, fastener, watchmaking and medical engineering industries.
The company recently has introduced a new range of machines that incorporate the proprietary DECO concept; employing Microsoft Windows-based software, these lathes offer greater precision, flexibility and efficiency.-J.J.
Table 1: U.K. Buyout Market Values, 1995-1998
Deals valued at < GBP50 mil. Deals valued at > GBP50 mil.
Number Value (GBPm) Number Value (GBPm) Total
1995 QI 119 396 5 376 772
1995 QII 159 699 6 822 1520
1995 QIII 122 693 3 292 985
1995 QIV 167 1020 9 1170 2190
1996 QI 137 755 6 2298 3052
1996 QII 192 1161 3 223 1384
1996 QIII 148 753 6 524 1276
1996 QIV 141 864 7 1241 2105
1997 QI 175 1054 13 1585 2639
1997 QII 171 915 7 646 1561
1997 QIII 145 757 11 1243 2000
1997 QIV 153 972 16 3184 4157
1998 QI 173 1167 13 3015 4182
1998 QII 133 898 15 2525 3423
1998 QIII* 155 932 15 2668 3600
1998 QIV* 130 920 10 1300 2220
*Provisional
Source: CMBOR/Barclays Private Equity/Deloitte & Touche Corporate Finance
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