Study: Maturity Paying Off for European Buy-and-Build

Private equity remained committed to buy-and-build strategies in 2008, although figures were down as expected from the total in 2007.

According to research published by mid-market private equity house Silverfleet Capital, there were 326 follow-on acquisitions undertaken in Europe in 2008, down from the record high of 465 in 2007.

Recent examples include UK high street pharmacist Alliance Boots’ acquisitions of France’s Depolabo and German oncology group Megapharm, as well as UK tourist attraction operator Merlin Entertainment’s purchase of the Underwater Adventures aquarium in the US.

Alliance Boots was taken private in 2007 by Kohlberg Kravis Roberts in Europe’s largest ever buyout at £11.1bn. Merlin was acquired by Blackstone for £102m in 2005.

Silverfleet also found that a larger number of follow-on acquisitions were carried out by portfolio companies held in the fund for between three and five years. The firm said this suggests that with market conditions precluding a sale of the portfolio company, bolt-ons that might otherwise have been passed over are now actively being pursued, especially as more mature portfolio companies are less likely to be indebted.

In terms of debt, Silverfleed added that conversations with leading banks including Ares Capital, Bank of Scotland, Barclays, Lloyds and UBS suggested that debt will be available for high quality transactions over the next 12 months.

“Buy and build is a core tool to create more robust, larger, growing companies thereby generating value for investors,” said Neil MacDougall, managing partner of Silverfleet Capital. “2008 has seen private equity houses continuing to pursue these deals, including, in some cases, entirely through equity funding. Although, unsurprisingly, activity dropped in Q4 2008 post the insolvency of Lehman, 48 follow-on acquisitions were still completed.”

Source: Thomson Merger News