Published: April 8, 2010
Lack of funding and mismatched valuations see Europe’s dealmakers struggle.
Europe’s private equity firms failed to follow through on plans to build up portfolio companies with bolt-on acquisitions last year.
A new report from private equity house Silverfleet Capital and research firm mergermarket finds that the number of add-on acquisitions by European firms halved last year to 203, the fewest since 2004. Value dropped to £3bn, its lowest since 2003.
Neil MacDougall, managing partner at Silverfleet Capital says: “Companies that should have been in a position to make acquisitions faced several hurdles including a lack of quality assets, a lack of financing for acquisitions and vendors who had not adjusted their valuation expectations which remained too high. Also, those portfolio companies saddled with high leverage and an uncertain future have given many management teams little leeway to consider acquisitions.”
Nonetheless, MacDougall sees improvement in the market and says buy-and-build should remain an important strategy for value creation. “Even in 2010, private equity firms are having to pay full prices for platform companies and the lower entry multiples of add-ons and the synergies they bring will be essential to achieving an acceptable IRR for investors,” he adds. “We therefore expect that as the M&A market picks up and the banks gain in willingness to support strong businesses, the proportion of add-on acquisitions will recover in 2010-2011.”