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28 June 2017

European Buy & Build activity reaches highest level on record

Silverfleet Capital, in conjunction with Mergermarket, today publishes the findings of its European Buy & Build Monitor for 2016. The Buy & Build Monitor tracks global add-on activity undertaken by European‑headquartered companies backed by private equity.

Headline findings

  • Silverfleet’s 2016 Buy & Build Monitor reported 5371 add-ons, making 2016 a record year for European add-on activity2
  • The UK & Ireland was once again the most popular region for add-ons with 111 transactions in the year
  • The Nordic Region saw a 40% year-on-year increase in add-ons, driven by Sweden and Denmark
  • Average deal values increased by 74% vs. 2015
  • Add-on activity outside of Europe dipped slightly year-on-year

The Buy & Build Monitor, which tracks global add-on activity undertaken by European-headquartered companies backed by private equity, identified 5371 add-ons in 2016 compared to the 464 and 414 add-ons recorded in 2015 and 2014, respectively.

The average disclosed value of add-ons in 2016 was £73 million, up from an average of £42 million in 20153.

Historically, the volume of add-on deals has been correlated with the volume of private equity funded buyouts in Europe, and has broadly tracked the trend in the mid-market M&A index. The findings in this report, however, show that in recent years a divergence has become apparent, with add-on volumes clearly out performing buyouts and mid-market M&A.

The largest recorded add-on acquisition in the year was Prague-based Avast Software, a computer antivirus software business backed by CVC and Summit, acquiring AVG Technologies, a Netherlands based business with Czech roots, for over $1.4 billion.

Two further transactions had reported values in excess of £500 million. The first saw Scotland-based Siccar Point Energy, a company backed by Blue Water Energy and Blackstone Energy Partners acquire OMV (U.K.), a UK headquartered E&P business which was a subsidiary of OMV Aktiengesellschaft for £605 million. The second deal involved two UK companies in the wealth management sector where Permira-backed Tilney Bestinvest acquired Palamon-backed Towry in a £600 million transaction.

Geographic trends

UK & Ireland performed strongly and represented the most active region in Europe in 2016 despite concerns regarding the future impact of the Brexit vote in June 2016. The Nordic Region, usually one of the most active areas in Europe, staged a strong recovery in 2016 (40% increase year-on-year) following a significant drop in 2015. This increase was in large part due to a near doubling of add-on volumes in Sweden and Denmark.

Offsetting this increase was Spain and Portugal, which had a very strong period for add-ons in 2015, but was noticeably weaker in 2016 and back in line with 2013 and 2014 volumes. A similar pattern was also apparent in the data for the CEE region.

Overall, activity across Europe was stronger in 2016 (12.4% rise vs. 2015) with increased activity also seen in France, DACH, Benelux and Italy.

Add-on activity undertaken outside Europe (12.1% of total volume) appears to have followed its normal pattern with North America as usual, the favourite target and over twice as active a region for European companies to buy into as Asia Pacific.

Comment

Commenting on the findings, Neil MacDougall, Managing Partner of Silverfleet Capital said: “2016 saw Buy & Build activity in Europe reach pre-2008 financial crisis levels both in terms of the number of deals completed and their average size.

“In a buyout market where acquisition multiples have been steadily increasing, the findings clearly demonstrate that private equity firms view Buy & Build as a key component of their value creation strategy, making add-on acquisitions to help average down high entry prices and drive EBITDA growth. While this phenomenon has long been anticipated it is only relatively recently that it has clearly started to show up in the data.”

Location of target add-on20132014201520162015-16
(% change)
UK & Ireland 63 86 102 111 9%
Nordic Region 62 85 68 95 40%
France 35 49 56 62 11%
Germany, Switzerland and Austria 42 35 46 61 33%
Benelux 26 24 29 43 48%
Italy 12 17 23 33 43%
Spain and Portugal 18 16 38 20 -47%
Central and Eastern Europe 19 21 27 17 -37%
South Eastern Europe 3 4 6 2 -67%
Total Europe28033739544412%
North America 23 46 38 39 3%
Asia Pacific 15 24 18 15 -17%
Latin America 7 5 8 8 0%
Middle East and Africa 3 2 5 3 -40%
Total Rest of World48776965-6%
Estimated residual deals1       28  
Total overall328414464537+16%

Source: Silverfleet European Buy & Build Monitor 2016

For the full report, please click here

1 Methodology

The data used in the Silverfleet Buy & Build Monitor is prepared by Mergermarket. It only includes add-on acquisitions made by companies where more than 30% of their equity is held by a private equity fund and where the platform business is a European-headquartered company.

The value of the add-on needs to exceed €5 million or the target should have at least €10 million of sales to be included.

One challenge that we always face when writing this report is that the data for the last quarter being reported is usually incomplete, especially as smaller add-ons are less well reported and frequently come to light after the analysis has been completed.

We have therefore decided to apply a pro-forma increase of 12.4% to H2 2016 volumes to assess trends. From our H1 2016 analysis, we can see this is the size of adjustment that would have been required for our H1 2016 pro-forma to have been accurate in terms of add-on volumes.

28 additional transactions (pro-forma) have therefore been added to the H2 2016 reported volumes. Extrapolating this methodology of creating pro-forma numbers to any detailed breakdown of the data such as the regional analysis is however much less straightforward, so we have chosen not to do so.

2 Since 1998 when we started to record this data.

3 Based on the 81 deals with disclosed values reported in the period.