Investor resistance hits private equity buyouts

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The Independent Online

The current fad for private equity buyouts was dealt a twin blow today by figures showing a slump in UK deals and a report claiming that almost all deals failed to meet the buyers' expectations.

The volume of UK takeovers by venture capital houses has fallen to €15bn (£10.2bn) in the first half of the year from €19bn in the same period in 2005 - a drop of 21 per cent.

The figures from CMBOR, an analysis unit run by Barclays Private Equity and Deloitte, showed that continental Europe had seen a 70 per cent surge in deals over the same period to €55.3bn.

It said the divergent performance was driven by an almost threefold increase in the number of private buyouts of stock market-listed companies on the Continent.

This contrasted with a drought of such deals in the UK, where shareholders in public companies have become "increasingly resilient" in resisting private equity takeovers.

The UK still contributed three of the largest deals in Europe, the same as Germany and more than any other country other than France. These included the €1.75bn sale of SSP and Creative Host Services by Compass Group.

The other British deals were a secondary buyout - a sale between private equity houses - of the engineering firm Doncasters for €1.02bn, and the sale of Orchid pubs by the pubs giant Punch Taverns for €832m.

The report came just a day after two private equity houses dropped plans for a £2bn bid to take over Signet, the jewellery firm. On a more positive note Permira has won the auction for Unilever's Birds Eye and Iglo brands.

Mark Pacitti, corporate finance partner at Deloitte, said: "Corporate disposals reflect the continued corporate restructuring programmes on the Continent."

Meanwhile, the accountants Grant Thornton said 96 per cent of all mid-market takeovers by venture capital houses fell short of the targets set out by the buyers before the deal,

It said the figure highlighted the importance of carrying out due diligence before the deal, particularly in areas such as operational systems, management and IT.

More than four out of 10 investors blamed the appointment of underperforming management as the more common reason for failure to hit financial targets.

David Axon, a partner at Grant Thornton, said: "The problem is that it's impossible to provide guarantees that management can deliver the business plan."

The survey also showed that 98 per cent believed that an auction was not the best way to buy a business - although one in five deals over the past 12 months was carried out that way.