Although 2009 is certainly a year to forget - Unquote

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corporate M&A unquote Corporates trump private equity in European M&A Private equity continues to lag behind corporate buyers in size of merger and acquisition (M&A) deals executed in Europe, as cash-rich corporate players flex their muscles to offer both capital and synergies in the space. Gail Mwamba reports The first half of this year has seen a significant pick-up in M&A activity, with deal-making in Europe estimated to have reached about $230bn in the first half of 2010. A significant number of these deals have been executed by corporates making acquisitions, which includes the purchase of Cognis by BASF for an estimated enterprise value of 3.1bn. According to Edward Boyce, Nomura’s Londonbased managing director of investment banking, the top 20 largest deals seen in Europe, the Middle East and Africa (EMEA) this year have been executed by corporates. “The top deals we have seen this year in EMEA, in terms of size, have been corporates buying corporates,” says Boyce. “They are situations where a trade buyer is a better solution, and a private equity investor cannot compete because it is not able to provide the same synergies.” According to Boyce, corporate players are able to sometimes win over vendors because they generally offer a longer holding period, while private equity investors tend to seek to exit within three to five years. Corporates are also able to reign in situations where the target company will require constant streams of cash to survive, which may be a disadvantage for private equity players who are generally geared to finance acquisitions. In recent times, corporates have increasingly been able to provide this kind of support, as many are sitting on large pots of money, some of which has been gained through retained earnings. “Securing funding is not an issue for us, as we have cashflows that have been generated organically,” says Swag Mukerji, chief financial officer at Londonbased washing machine producer SafetyKleen. “Fortunately, we have been resilient to the recession.” However, the availability for corporates of sustained cashflow and the potential for synergies with their targets has not been enough to purchase significant assets from private equity players. According to unquote” data, although exiting via trade sales constituted about 44% of deal volume in the first half of 2010, this only amounted to 17% of total value. This is compared to secondary buyouts, where 28% of volume equated to 44% in deal value. It remains to be seen if corporates will extend their reign to this space as well. 08 UNQUOTE AUGUST/SEPTEMBER 10 ENTIRE CONTENTS COPYRIGHT 2010 INCISIVE MEDIA INVESTMENTS LTD www.unquote.com/france
unquote tertiary buyouts Tertiary buyouts: passing it on As deal-making fever returns to the market, tertiary sales appear to be back in vogue for a number of private equity investors looking to put their secondary assets on the block. Gail Mwamba reports French pharmaceutical firm Cerba European Lab was recently sold by IK Investment Partners to PAI partners in an estimated 500m tertiary buyout. PAI backed the 2006 secondary buyout from Astorg Partners. However, the company’s private equity investment history stretches back even further, having been backed by Initiative & Finance and Natexis in a previous funding round. Barclays Private Equity also chose to go with a private equity player in its sale of UK luggage brand Antler in May, to Lloyds Development Capital – the third time the firm had been backed by a private equity investor. BPE bought the company from Royal Bank Equity Finance in 2004, with the vendor having backed its first buyout in 1999. Some tertiary deals have been spurred by investors looking for more experienced buyers able to offer speed of execution as well as an attractive deal price. This was the case for Change Capital Partners, which this month sold UK fashion retailer Republic in a tertiary deal to TPG Capital for an estimated £300m. Change Capital backed the company in a 2005 SBO from 3i. “There was a lot of private equity and trade interest in the business, and we made the decision to pursue the option of a financial buyer based on both price and timing,” says Steve Petrow, managing director at Change Capital Partner in London. “Trade players had a lot of interest, but the time frame that we were working within was quite difficult.” However, for Herkules, which recently sold Nordic healthcare equipment manufacturer Handicare to Nordic Capital, financial backers were specifically sought as Handicare was in need of fresh capital. Herkules, which had bought the company from AAC Capital Partners in 2005, ran out of capital in its first fund and was not able to finance further growth. “We invited only financial parties, and we had strong interest from Nordic and European funds, as well as US funds with offices in Europe,” says Patrik Egeland, partner at Herkules in Oslo. “We felt the company would benefit from having more capital to grow.” According to Petrow, the industry is expecting to see more tertiary deals in the future. This may well be the case, with recent reports of private equity buyers reportedly having joined the race to buy Bain Capital’s Italian software company, TeamSystem SpA, for an estimated 600m. Bain bought the company in a secondary buyout from Palamon Capital Partners in 2004. The spurt in tertiary activity may reflect difficult conditions in other exit markets, as the world economy remains weak. However, with some sellers specifically targeting other private equity buyers, believing they can bring something more to the business, it could indicate investors are adopting a longer-term view, hoping their portfolio companies will continue to thrive long after investor and company part ways. ENTIRE CONTENTS COPYRIGHT 2010 INCISIVE MEDIA INVESTMENTS LTD UNQUOTE AUGUST/SEPTEMBER 10 09 www.unquote.com/france
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Although 2009 is certainly a year to forget - Unquote

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