Angel News Pres 26 Jan Latest
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Management Buy-outs Mike Wright Centre for Management Buy-out Research www.cmbor.com Angel News Presentation 26 January 2010
Transcript of Angel News Pres 26 Jan Latest
Management Buy-outs
Mike WrightCentre for Management Buy-out Researchwww.cmbor.com
Angel News Presentation 26 January 2010
Centre for Management Buy-out Research Identified emergence of UK buy-out market early 1980s
Organised first European buy-out conference in 1981 Centre for Management Buy-out Research (CMBOR)
Established 1986 at Nottingham University Business School as first centre focusing on private equity
To examine developments in UK & European buy-out markets in comprehensive and independent manner
25 years of research into MBO/MBIs Established world leading database of buy-outs
Currently >27,000 buy-outs in UK and Europe Publications generated from database including:
UK Quarterly Review and European MBO Review Approximately 300 academic papers and 25 books
Database used for detailed academic, policy & commercial studies
Private Equity and Buy-out Trends
Difficult year was again predicted and realised for 2009 Whole market affected not just top end
£10-£100m deals at 30% of numbers against 46% in 2008
Final 2009 total PE backed value lowest since 1995 at £4.7bn
Deals now completed with far higher levels of equity and appearance of all equity deals
UK Buy-out/Buy-in Trends
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UK Buy-outs/Buy-ins £10-100 millionMid-market badly hit also
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UK MBOs below £10 million
Fall in number and value of sub £10 million deals continues Most now not Private Equity backed
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Private Equity and Buy-out Trends
Shift to Receiverships and Divestment as Deal Sources (No. Deals %)
Entry EBIT Multiples Down Sharply After Increasing Over Many Years
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Fam/Priv O'seas UK Parent PTP R'ship Sec MBO Other
2005 2006 2007 2008 2009
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10 - 5 0£ m £ m 5 0 - 10 0£ m £ m 100Ov e r £ m
Receiverships Increasing Source of Buy-outs
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Industry Sectors by Value (% of value)
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Pro
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&C
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2005 2006 2007 2008 2009
UK Buy-out Deal Structures by % Financemarked contrast to recession of early 1990s
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1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Equity Mezzanine Debt Loan Note Other Finance
MBO/I Management Contribution (%)
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4
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181
99
1
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92
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Small deals (<£10m) Large deals (>£10m)
MBO/I Management Equity Stake (%)
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Small deals (<£10m) Large deals (>£10m)
Reasons for Sale of the Business
0 5 10 15 20 25 30 35 40 45 50
Other
Desire to contract out services
Distance from foreign parent
Liquidation/failure
Future capital expenditure requirements
Poor growth prospects
Cash flow considerations
Lack of profit
Retirement of owner
Lack of strategic fit/re-organization
%
CMBOR/EVCA Impact Study
Management motives for MBO Management motivation and expertise is critical to
success of the NewCo Desire for independence Motivation by capital gain Believe target has improved prospects as an independent
entity
Family Buy-outs Succession Issues Capital Transfer Tax Desire to Maintain Independence Reluctance to Sell to Competitors Absence of Internal Management?
Family Firm Buy-out Negotiations In 43% vendor and management shared relevant information
equally, 42% vendor controlled all or most information, 15% management controlled most or all of relevant information.
No succession planning in over 20% and only 1/3 planned succession two or more years before
46% indicated a mutually agreed price had not been negotiated, of which 27% reported vendor proposed fixed price that maximised their valuation. A further 11% reported the vendor suggested a fair price in best
interests of the company. Negotiations less likely to involve a mutually agreed price where
succession process driven by the vendor. Vendor controlled all or most of relevant information in MBIs
highlights problem for outside purchasers & suggests caution in deal negotiation; often hidden problems difficult to identify in due diligence
Exit Numbers and Values Have Plummeted
Shift to receivership exits
Secondary buy-out exits down sharply
IPO exits disappeared for two years but recovery in 2010
MBIs typically have higher failure rate than MBOs
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Flotation MBO/MBI Receivership Trade Sale
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Number~of~Exits Total Exit Value (£m)
Holding Period (months)Most are not quick ‘flips’
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
All Buy-Outs/Buy-Ins Buy-Outs/Buy-Ins in Family Firms
Performance and Failure Buy-out profitability greater than non-buyouts over first 3
buy-out years Buy-outs improve productivity from below industry
productivity before buyout PE buyout failure vs non-buyout failure
7million firm years 1995-2009 including all UK companies Leveraged firms [of any kind] more likely to fail Buy-outs where directors previously failed, more likely to
fail After taking into account leverage and other factors:
PE backed buyouts post 2003 not significantly different in failure likelihood than non-buyouts
What Drives Performance Changes?
Divisional deals greater growth in sales, efficiency & profits than family & secondary deals
Buy-outs involve growth and NPD not just cost cuts Management equity largest impact on returns
After adjusting for management selecting an attractive deal
Active PE firm monitoring important Industry specialism & experience of deals done
Skills base to add operational value likely to become more important, with less reliance on leverage Need for close understanding of business models of investees Close, active involvement in boards
Private Equity Prospects 2010 outlook more positive
Recent announcement of more larger deals than for some time [5 in Q4 above £100m)
48% increase in Q4 in PE backed deals to £943m
Upturn in PE backed PTPs in Q4 [4 of the 9 for 2009]
Times to exit likely to be up to 2 years longer overall Likely surge in build-up deals to
add value over a longer period Gartmore IPO in 12/09 &
Likelihood of IPOs in 2010 But limited share of exit
needs
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02I
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Thank You!
Further reading:
John Gilligan and Mike Wright, Private Equity Demystified, 2nd Edition, ICAEW, 2010
Downloadable from www.cmbor.org
