10 September 2014

Very low activity levels and deal values in Q1 2014 drag down half year figures

Headline Findings

124 add-ons were reported in H1 2014 compared to 148 in H1 2013 and an H2 2013 figure of 141, which has been revised upwards from 129. Further data for smaller Buy & Build transactions usually emerges well after the publication of this report. Therefore, based on our experience, the number of deals in H1 2014 is very likely to be revised upwards in our next report, possibly at the expense of the average reported deal size. However, the lower figure is mainly the result of a very weak first quarter which is now unlikely to see much subsequent adjustment so we conclude that activity levels in the first half of 2014 have been weaker.

The average disclosed value of add-ons in H1 2014 was also down at £48 million, based on the 19 deals with disclosed values reported in that period, well below the average of £73 million for 24 deals with disclosed values announced in H2 2013 and even the £53 million for the 30 deals in H1 2013 for which valuations are available.

Noteworthy deals in H1 2014 included the £200 million purchase of Banner Homes by CALA Group, the largest add-on in Q1 2014, and R&R Ice Cream’s A$ 440 million purchase of Peters Food Group based in Melbourne which was also the largest add-on in Q2 2014. Another notable transaction in the first half of 2014 was Sophos buying Ahmedabad based Cyberoam Technologies, for a value estimated to be around $75 million. CALA is backed by Patron Capital, Legal & General and Electra while R&R is owned by PAI and Sophos by Apax.Silverfleet Capital backed Competence Call Center was also active in Q1 2014 acquiring Berlin based Air Berlin Dreizehnte Flugzeug GmbH and other assets of the Air Berlin group in a move that has outsourced Air Berlin’s customer service activities.


Commenting on the findings, Neil MacDougall, Managing Partner of Silverfleet Capital said: “This volume and value data has come as a surprise. With a stable economic situation in Europe and benign financing conditions we had expected stronger levels of buy & build activity than this. However, we note that many private equity backed companies have been busy returning cash to investors through dividend recaps or flotation. It is possible these activities have taken precedence in a sufficient number of cases to make a difference to the market data as a whole.”Below is an updated graph of the half-yearly performance of European add-on volumes shown against mid-market M&A activity and overall European buyout indices, based on data provided by unquote” data.

Historically the volume of add-on deals has been strongly correlated with the volume of private equity funded buyouts in Europe and has broadly tracked the trend in the mid-market M&A index. This correlation looks to have been weaker in H1 2014 possibly for the reasons outlined above.

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