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06 June 2019

European Buy & Build activity in 2018 reaches record high with total value of £9.5 billion

Silverfleet Capital, in conjunction with Mergermarket, today publishes the findings of its European Buy & Build Monitor for 2018. The Buy & Build Monitor tracks global add-on activity undertaken by European‑headquartered companies backed by private equity.

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Headline findings

  • Silverfleet’s 2018 Buy & Build Monitor reports 7021 add-ons, up from 650 in 2017
  • Buy and Build activity was at its highest level since data was first tracked in 1998
  • UK & Ireland and the Nordics were the most active regions for add-ons despite a weaker performance compared to 2017
  • France, the DACH and Italy saw the biggest percentage increase in add-ons compared to 2017
  • Average deal value was £164 million

European Buy & Build activity reached its highest recorded level in 2018 with a total disclosed deal value of £9.5 billion, according to Silverfleet Capital’s European Buy & Build Monitor. Despite increased Brexit uncertainty, the UK & Ireland remained steadfast as the most active region for add-ons.

The Buy & Build Monitor, which tracks global add-on activity undertaken by European- headquartered companies backed by private equity, identified a provisional total of 702 add-ons in 2018, an 8% increase from the 650 recorded over the same period in 2017.

The average disclosed value of add-ons in 2018 was £164 million2, up from the 2017 average of £80 million. However, 2018 saw just 16 add-ons with values greater than £60m or €67m announced, significantly fewer than the 35 deals exceeding £60m announced in 2017.

The largest recorded private equity-backed add-on in 2018 was CVC and the Messer Group’s $3.3 billion acquisition of Linde AG’s gases business in North America and certain Linde and Praxair activities in South America.

Geographic trends

The UK & Ireland and the Nordic region remained the most active add-on regions with 131 and 103 deals respectively, but both suffered falls of 7% and 14% compared to the previous year. The former’s drop in activity from 141 add-ons to 131 is in large part due to growing political uncertainty, which significantly hampered domestic investment over the course of the year.

France registered the biggest surge in Buy & Build activity, rebounding with a 15% increase (75 add-ons versus 65 in 2017). The DACH region similarly bounced back with an 11% increase (73 versus 66) and Italy continued its stable growth, announcing 51 add-on deals compared to the 46 announced in 2017.

The Nordic region’s biggest contributor in 2018 was Sweden, staging a strong recovery with 42 add-ons, up 24% from 2017. This was offset by weakened activity in Denmark and Norway, which both had ten fewer add-ons than in 2017.

Despite registering fewer transactions, Danish ferry operator Molslinjen’s acquisition of shipping company Danske Færger for DKK 594 million meant the country had one of the largest add-ons of the year.

Outside of Europe, North America too suffered a notable fall in add-ons made by European companies compared with the previous two years, with 11 fewer made than in 2017, marking a 20% decrease.

Silverfleet’s buy & build activity in 2018 includes 7days’ acquisition of Praxis Herning A/S. 7days is a specialist workwear supplier to the healthcare sector based in Germany and agreed to acquire the Danish company Praxis Herning A/S, which supplies the same end markets in the Nordic region. The purchase price has not been disclosed. The acquisition is the first step in the growth strategy for 7days, in particular through increasing its market penetration in other regions of Europe.

Comment

Commenting on the findings, Gareth Whiley, Managing Partner of Silverfleet Capital said: “The volume of transactions has risen every year since 2013, driven by liquid financing markets, a resilient European economy and increased appetite among private equity-backed companies to generate growth through acquisition. The fact that the UK & Ireland continued to lead the way in add-on activity despite a slow start to the year and Brexit uncertainty speaks volumes for the growing success of this method of value creation.”

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. Datasets reported on by other commentators do not appear to have this minimum size threshold and would therefore not be directly comparable.

One challenge that we always face when writing this report is that the data for the last quarter being reported on 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 29% to H2 2018 volumes to assess trends. From our H1 2018 analysis, we can see this is the size of adjustment that would have been required for our H1 2018 pro-forma to have been accurate in terms of add-on volumes.

84 additional transactions (pro-forma) have therefore been added to the H2 2018 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.

Please note that a number of possible add-on transactions have been excluded as the equity stake % in either the platforms or the add-ons were not disclosed.

2 Based on 58 deals with disclosed values reported in 2018. Under 10% of add-on transactions disclosed values in 2018 – much lower compared to 16% in 2017 and 17% in 2016. We believe a trend towards not disclosing deal values is the underlying explanation for the higher average deal values.