Record year for private equity

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The Independent Online
DESPITE worries about the Y2K bug, 1999 will be a record year for venture capital with more than pounds 15bn of deals already completed - pounds 1bn more than last year.

Figures from the Centre for Management Buy-out Research at Nottingham University, released today, show that this will be the greatest ever year for management buyout and buy-ins in the UK. The pounds 15bn of deals recorded so far includes another record - 33 deals over pounds 100m, compared with 25 in 1998.

According to Chris Ward, a partner of Deloitte & Touche, which sponsored the report, this is only part of the story. He reckons that around pounds 10bn of buy-outs were completed elsewhere in Europe this year, almost all of which were backed by British companies or the London offices of US private equity firms.

With venture capitalists famous for the high levels of fees they charge, the volume of deals will have generated as much as pounds 1bn in fees for deal makers, lawyers and accountants.

The record year comes despite dire warnings that the flow of deals would dry up because of worries about the Y2K bug. The accountancy profession was concerned that deals signed off by reporting accountants could collapse as the bug struck, leaving the accountants exposed to litigation from angry investors.

Those concerns have now been replaced, however, by worries that many of the buyouts struck this year were at too high a price.

Private-equity backed offers have beaten rival bids from trade buyers, and buyouts of public companies have gone through at prices well above what the stock market thought the companies were worth.

There has also been the growth of "buy to build" deals, where a buyout has been followed by the purchase of another company in the same market to bolster the group for a potential flotation.

According to Tom Lamb of Barclays Private Equity, this means that the market is storing up a great deal of trouble for itself.

Mr Lamb notes that flotations on the London Stock Exchange have raised less than pounds 5bn this year, and floating the companies is one of the main ways for venture capitalists to recoup their investments in buyouts.

"Some pounds 30bn of businesses have been bought in the last two years," says Mr Lamb.

"Most are not floatable. They will have to be sold and where are the buyers?"