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EMBARGOED FOR PUBLICATION UNTIL 00.01 AM BST SUNDAY 25 SEPTEMBER Subdued activity in the UK buy-out market continues into the final half of the year Number and value of UK buyouts declines quarter on quarter during 2011 London, 25 September, 2011 - The overall value of UK buyouts in the first three quarters of 2011 reached £7.8bn, lower than at the same point last year, when a resurgent buyout market totalled £13bn, according to the latest data published by the Centre for Management Buyout Research (CMBOR), sponsored by Ernst & Young and Barclays Private Equity. While activity throughout 2011 has been subdued in comparison to last year, the value of buyouts in the third quarter reduced markedly, with values slumping to £1.1bn, compared to £3.1bn in Q2 and £3.6bn in Q1. The number of buyouts also fell in the third quarter from 51 in Q1, 38 in Q2 to 35 during the third quarter. In the nine months to September there have been 124 deals, compared to 139 at the same point last year. The total value of buyouts this year only equates to 42% of last year’s total. Sachin Date, Private Equity leader for Europe, Middle East, India and Africa (EMEIA) at Ernst & Young comments, “The slowdown in activity in both value and volume this quarter clearly reflects a weakening in business confidence.” Christiian Marriott, Director at Barclays Private Equity, says: “The exit market has declined in the third quarter in line with the overall buyout trend. While the market sentiment remains cautious, increased interest from international corporates in private equity assets is evident and is set to continue - the total value of exits to trade buyers has performed strongly in 2011, outstripping the total value of secondary realisations for the first time since 2006. By contrast, the IPO market for private equity-backed firms has remained firmly closed for business in the UK." The continuing shift from to debt to equity Equity levels have remained high in 2011, with some all equity transactions taking place. For the nine months to September, equity accounts for 68% and debt 24%, this compares to 65% and 29% respectively during 2010. The proportion of equity held by management currently sits at 24% which compares to 31% for 2010. “So far this year we have experienced a lot of 100% equity deals, which is the highest level of equity proportion since data records began. Much of this is down to the risk aversion and nervousness amongst the banking sector to provide debt to fund these deals,” says Date. Smaller deals are proving more attractive Deal values and volumes in the lower mid-market deal space (£10m – 100m) are relatively positive in the context of this year’s overall performance, with 60 deals completing in the first three quarters with a value of £2.1bn. This compares to 55 deals at the same point last year (value £1.9bn) and 68 for the whole of 2010 (value £2.3bn). Date comments, “The current trend is for PE to consider smaller deals because of the lower gearing and lower risk involved in each deal. We are also seeing competition intensifying among PE houses for deals in this value range, as a consequence of houses competing for far fewer quality assets.” Sectors under the spotlight Putting the Brit Insurance deal to one side, activity levels across the financial services sector have been low. Contrary to predictions, there has been a distinct lack of post crisis consolidation in the industry. One factor could be that the industry is so highly regulated that PE houses are put off by the level of red tape. This said, there are some deals on the periphery of financial services, those companies that provide business support and technology to the sector that could transact in the near future. The number and value of buyouts in the retail sector have declined significantly this year, recording only 9 and £992m respectively. This compares to 16 deals completed with a value of £2.8bn in 2010. Date comments, “The retail sector enters its most important trading period in the lead up to Christmas but with disposable income stretched it is likely to be tough on the high street for some time to come. “Only 10% of deals have been brought out of insolvency this year but we could we see an increase in pre-packs over the next three months, as a result of more distress in the retail sector?” Other findings Pace slows for large buyouts The research reveals that larger buyouts have slowed in 2011. For the first three quarters of this year, there were 15 deals over the £100m mark, with a total value of £5.6bn, this is compared to 30 deals with a total value of at £10.9bn at the same point last year. The largest buyout for Q3 was V-Ships with a value of £319m, and the largest this year was Priory Group for £925m in March. Public to Private slows Public to Private (PTP) buyouts have been extremely slow in 2011 with only four having completed so far this year, totalling £1.0bn. This is the second lowest number of PTP transactions since 2009 and is in stark contrast to 2010 when 12 completed. Brit Insurance is the largest PTP deal this year, delisting for £888m in March. Without this deal values would be low at £138m. Secondary buyout exit route remains popular Secondary buy outs have remained high this year, with 41 recorded in the three quarters to September with a total value of £4.1bn. This compares to 41 for the whole of last year with a total market value of £7.3bn. The largest exits during the third quarter were V Holdings/V Ships (Secondary buy-out £319m), and Toms Confectionery/Tangerine Confectionery (Secondary buy-out £120m). Ends Trends of (PE Backed) Buy-outs/Buy-ins 450 50000 400 45000 350 40000 Number 30000 250 25000 200 20000 150 £ million 35000 300 15000 100 10000 50 5000 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 0 1985 0 Total Value (£m) Total Number Source: cmbor.com/Barclays Private Equity/Ernst & Young * Year 2011 figures are for first 9 months only Trends of £10-100m Buy-outs/Buy-ins 250 7000 6000 200 150 4000 3000 100 2000 50 1000 Total Number Total Value (£m) Source: cmbor.com/Barclays Private Equity/Ernst & Young * Year 2011 figures are for first 9 months only 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 0 1985 0 £ million Number 5000 Average Deal Structures by type of Finance (%) above £10m 120 100 80 60 40 20 Equity Mezzanine Debt Loan Note 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 0 Other Finance Source: cmbor.com/Barclays Private Equity/Ernst & Young * Year 2011 figures are for first 9 months only Media Enquiries Ernst & Young Adam Holden, Ernst & Young media relations – 0121 535 2128 / 07917000028 Merlin Rachel Thomas – 020 7726 8400 / 07787 504 447 Zinka Bozovic – 020 7726 84000 / 07769 255 380 CMBOR Mike Wright, Professor of Entrepreneurship, Imperial College London Business School and Director of CMBOR Rod Ball, Research Fellow, Imperial College London Business School Barclays Private Equity Christiian Marriott, Director 020 7594 2606 0115 951 5091 / 07904 214639 020 7653 5306 Notes to editors About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com. About Ernst & Young’s Transaction Advisory Services How organizations manage their capital agenda today will define their competitive position tomorrow. We work with our clients to help them make better and more informed decisions about how they strategically manage capital and transactions in a changing world. Whether you’re preserving, optimizing, raising or investing capital, Ernst & Young’s Transaction Advisory Services bring together a unique combination of skills, insight and experience to deliver tailored advice attuned to your needs helping you drive competitive advantage and increased shareholder returns through improved decision making across all aspects of your capital agenda. About CMBOR The Centre for Management Buy-out Research (CMBOR) was founded at Nottingham University Business School in 1986 and has been sponsored by Barclays Private Equity since its establishment. CMBOR is worldrenowned as the long-standing leader in providing robust analysis of the buy-out market. CMBOR data covers all buyout activity and therefore includes transactions funded on a cash or debt-only basis as well as traditional private equity-funded buyouts. On 1st September 2011, CMBOR moved to Imperial College London. Barclays Private Equity Barclays Private Equity is one of Europe’s leading investors in mid-market buyouts with a successful track record spanning over 25 years. It has successfully completed more than 350 transactions during this time and has generated attractive returns for its investors. It has a team of over 40 investment professionals in seven offices across five countries. Its offices are in Birmingham, London, Manchester; Paris; Munich; Milan and Zurich. Its investment in individual transactions ranges between €10m and €300m although it is able to underwrite much larger equity investments which would be shared with co-investors. In the UK, it has a sector focus on Consumer & Travel, Financial Services, Support Services and Specialist Engineering. Barclays Private Equity has raised over €5 billion of committed capital and has many of the world’s leading investors amongst its investor base. It is currently investing the €2.45 billion Barclays Private Equity Fund III which closed in September 2007. The buyout team is currently investing funds from Barclays Private Equity European Fund III alongside those of its parent, Barclays Bank PLC. Barclays Private Equity’s portfolio of investments across all its funds under management currently consists of over 50 companies. Barclays Private Equity Limited, a Barclays Capital Company, is authorised and regulated by the Financial Services Authority. Registered in England no. 1125740. Registered Office: 1 Churchill Place, London, E14 5HP. For further information, please visit www.bpe.com.