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26 June 2018

European Buy & Build activity in 2017 reaches new high with total value of £7.8 billion

Silverfleet Capital, in conjunction with Mergermarket, today publishes the findings of its European Buy & Build Monitor for H2 2017. The Buy & Build Monitor tracks global add-on activity undertaken by European‑headquartered companies backed by private equity.

Headline findings

  • Silverfleet’s 2017 Buy & Build Monitor reports 6191 add-ons, up from 574 in 2016
  • Buy & Build activity reaches highest level since data was first analysed in 1998
  • Italy, Spain and Portugal register biggest year on year rise in add-ons
  • Average deal value of £87 million

European Buy & Build activity in 2017 reached its highest level on record2 with a total disclosed deal value of £7.8 billion, according to Silverfleet Capital’s European Buy & Build Monitor. The most active region for add-ons was the UK & Ireland, despite the uncertainty caused by Brexit.

The Buy & Build Monitor, which tracks global add-on activity undertaken by European- headquartered companies backed by private equity, identified a provisional total of 619 add-ons in 2017, a 7.8% increase on the 574 add-ons recorded in 2016.

The average disclosed value of add-ons in 2017 was £87 million3, up from the 2016 average of £82 million. A total of 33 add-ons with values greater than £60 million or €70 million were announced in 2016, the highest number on record.

Silverfleet’s analysis of European add-on activity reveals that over a third of add-ons are completed in the first two years following the acquisition of a platform, suggesting that a number of these may have been under consideration even before the platform was formed. A quarter occur between the second and third anniversaries and by the fourth year over two-thirds of all add-ons have been completed.

The largest recorded private equity-backed add-on in 2017 was Bridgepoint-backed Element Materials Technology’s acquisition of global testing company Exova Group plc for £770 million. In H2 2017 the largest add-on was Permira-backed Lowell GFKL Group’s £646 million acquisition of credit management businesses from Lindorff Group AB and Intrum Justitia.

Geographic trends

The UK & Ireland continued to lead the table with 123 deals followed by the Nordic region with 111 add-ons, sustaining the strong recovery it had made in 2016.

Both the DACH region and France were unexpectedly much weaker in 2017 with 57 and 56 add-ons, down 15% and 25% respectively on 2016. Offsetting this was the continued growth in activity in Italy (44 add-ons versus 35 in 2016) and a bounce-back in Spain and Portugal (34 add-ons versus 21 in 2016), a 62% increase.

Add-on activity undertaken outside Europe accounted for 13.4% of total volume with North America being the favourite target and over three times as active a region for European companies to buy into as Asia Pacific

Silverfleet’s buy & build activity in 2017 includes French specialty chemicals portfolio company Coventya’s acquisition of Borsa Istanbul-listed Politeknik and the add-on of Telbis, Coventya’s exclusive distributor of chemicals to the general metal finishing (“GMF”) market in Turkey.

Comment

Commenting on the findings, Neil MacDougall, Managing Partner of Silverfleet Capital said: “European Buy & Build activity reached its highest level since we started recording this data in 1998. With generally strong economic conditions in Europe, liquid financing markets and pressure on private equity firms to generate repeatable returns, the reasons for this are clear.

“The speed at which add-ons are completed suggests that many have already been lined up before the platforms that make them have been acquired by their private equity owners.”

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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 16.7% to H2 2017 volumes to assess trends. From our H1 2017 analysis we can see this is the size of the adjustment that would have been required for our H1 2017 pro-forma to have been accurate in terms of add-on volumes.

43 additional transactions (pro-forma) have therefore been added to the H2 2017 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 90 deals with disclosed values reported in 2017.