MBO market starts to cool off

After a hot run that has lasted more than two years, early signs have emerged
that the private equity market has begun to cool.

Research by KPMG’s private equity group found that the number of deals worth
more than £10m in the first quarter of 2006 was at its lowest for the past 32
months.

From January to the end of March 2006, only 31 deals with a total value of
£2.9bn were completed in the UK.

Mick McDonagh, a corporate finance partner at KPMG, said the 31 deals were at
the very bottom of the expected volume range per quarter, which suggested the
MBO market was beginning to ease off.

‘This quarter is at the bottom of the range and the lack of big deals around
the billion-pound mark has had a big impact on the total and average values,’
McDonagh said.

‘I still expect other quarters this year to post some high values, but we’re
unlikely to see a step change in the number of deals.’

McDonagh said the reason for the slow down was not a lack of capital, but a
shortage of quality deals. ‘This quarter articulates very clearly the key
challenge facing the private equity market. Vendors know that the balance
between supply and demand is in their favour, which is having an impact on both
pricing and the sales process.’

The lack of successful bids for large public companies has also had an effect
on the slow start to 2006. Few offers for plcs have been accepted, as boards
hold out for high premiums from private equity bids.