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13 June 2011

Appetite for Buy & Build is Back

Larger deals are winning favour amongst private equity backed businesses according to an analysis of buy & build activity across Europe during the first quarter of 2011. The study, published today, 13 June 2011, by Silverfleet Capital the European private equity house in conjunction with mergermarket, shows that the average deal value of add-ons has almost trebled on the same period in 2010, with a percentage increase of 292 per cent.

Commenting Neil MacDougall, managing partner of Silverfleet Capital said: "The nascent recovery in deal value shows that buoyance is returning to the buy & build market. After a [2] year hiatus portfolio companies finally feel confident enough to take acquisition risk and dig deep in their pockets to fund bigger deals.”

A detailed analysis of the announced values of build deals shows a significant across the board increase in Q1 2011 (an average of £120 million for 15 transactions) compared to Q1 2010 (an average of £41 million for 18 transactions). If this is sustained during the rest of the year it will show that the market has recovered markedly from the low point of 2009.

MacDougall continues: “Buy and build can fuel growth and build businesses of scale, a strategy that has been successful for Silverfleet Capital demonstrated in the recent sale of European Dental Partners, a business we built with 6 acquisitions and culminating in a sale to a strategic trade purchaser looking to increase market share internationally.”

Although there has been a noticeable resurgence of the average deal values of announced transactions, the number of bolt-on or build transactions completed in Q1 2011 is broadly on line with the same quarter last year with 76 completed in comparison to 70 in Q1 2010. However, this may rise further as typically there are later upward revisions to the figures for the most recent quarters - Q4 2010 volume is now 11 builds higher than in the last report for this reason.

Approximately 30-45 per cent of add-on or build transactions have a disclosed price. Silverfleet Capital has gone back over the last ten years and analysed how the average of these prices has moved over time and this is shown in the graph below. The significant rise of the average value of announced deals during previous cyclical high points is very clear. The surprising discovery is the extent to which this has occurred in Q1 2011.

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