Despite a bottoming out of the technology market, UK buy-out lawyers remain upbeat about
the current European and mid-market scene, writes James Baxter
The term ‘short arms, deep pockets’ is fast becoming an apt description of the European buy-out scene, with private equity investors exercising caution for the first time in two years.
The market undoubtedly boomed last year with more than £20bn of deals registered in the UK, according to research carried out by KPMG.
While the pace of fundraising is showing no signs of abating, turbulent market conditions have slowed the deal flow down considerably as vendors re-adjust their expectations.
The bottoming out of the technology market – where £17bn of European private equity money was allocated last year according to Initiative Europe – has reinforced the cautionary mood.
UK buy-out lawyers nonetheless remain upbeat about the current European scene, particularly at the mid-market level.
“The deals are certainly taking longer to close compared with last year as investors are being a lot choosier and taking longer over the due diligence,” says Pinsent Curtis Biddle corporate head Alan Greenough.
“Nonetheless, while the multi-billion pound deals have dried up, the mid-market continues to be active as the larger corporates look to dispose of their non-core assets.”
Greenough has emerged as the leading adviser by volume to European MBOs with six deals valued at £440m, according to data supplied by mergermarket.
He led the Pinsents team advising Barclays Private Equity on last month’s £270m management buy-out of specialist lender Preferred Mortgages. Buoyed by heavyweight instructions from Barclays and Bridgepoint, the firm views its buy-out practice as one of the key drivers behind its merger with Biddle this year.
“The merger has helped us improve our European capabilities, which was crucial if we wanted to penetrate the booming buy-out market,” Greenough says.
“We had natural synergies with clients and have made substantial progress, particularly in Sweden, which we see as a template for our further European expansion plans.”
The firm set up a strategic alliance with top 10 Swedish firm Magnusson Dahlin last year and identified the buoyant Scandinavian private equity market as key to the deal.
Recent moves by Slaughter and May client 3i into Sweden – the firm advised 3i on its proposed £580m acquisition of rival Atle – confirm the logic behind the tie-up.
A pan-European focus is proving critical for all the top firms looking to steal a march on their buy-out rivals, not least because the private equity houses are targeting continental Europe for their own expansion.
Ashurst Morris Crisp’s strong Paris and Frankfurt presence is one reason behind its good performance this year, confirming the firm’s market-leading reputation for MBO work.
Ashursts tops the mergermarket table for both value and volume, advising on 23 MBOs with a combined value of £3.7bn. Four of its partners – Mark Vickers, Thomas Forschbach, Adrian Clark and Charlie Geffen – rank in the top 10 individual advisers.
But not even Ashursts’ acknowledged expertise on the continent could prevent it losing out to Linklaters on one of the headline deals this year.
Linklaters’ Paris office scooped a new client when it acted for private equity house Candover Investments on the £590m MBO of French frozen food retailer Picard Surgeles from Carrefour – one of the largest buy-outs in French history.
Ashursts – Candover’s normal adviser – was conflicted out of the deal after advising another client, Apax Partners & Cie, which later dropped out of the bidding.
While Linklaters private equity practice in London remains low profile – the firm ranks 10th by value with seven deals worth £890m in the past year – its Paris office has capitalised on the conflict and expects to see plenty more work from the client.
The future looks bright indeed for the top private equity firms as their clients build up multi-billion pound war chests in the sure knowledge that the market will come good again.
CVC Capital Partners, the European private equity group, is rumoured to be considering a £2.4bn telecoms deal – a sector the big houses are actively targeting in the hope of finding more transactions like the £2.14bn buy-out of Yell, the yellow pages business recently sold by British Telecom.
The Yell cast list was predictably top tier. Clifford Chance scored a new client by advising Yell’s management on the deal while private equity groups Apax Partners and Hicks Muse Tate & Furst went with usual advisers Travers Smith Braithwaite and Weil Gotshal & Manges respectively.
Clifford Chance, Ashursts’ closest rival, has had a good year advising on 11 deals worth more than £3bn, including the £250m buy-out of RCGH by Royal Bank Private Equity.
Lower down the pecking order, a handful of regional firms have also performed well in the past year.
Eversheds and Addleshaw Booth & Co advised on 11 and 12 deals respectively, going head to head on the 3i-backed £223m take-private of the Peter Black group.
Eversheds, led by Rob Pitcher, advised management with Addleshaws, 3i’s preferred Yorkshire adviser, acting for the private equity house.
Public-to-private deals continue to provide a stream of high quality work to firms in Yorkshire, although the market has been notably more subdued this year. Likewise Midlands leader Wragge & Co, which was last year named Midlands adviser to 3i, will be disappointed not to be higher placed.
Despite adopting a cautionary tone over the last few months, UK law firms are in no doubt that fund managers have a lot of money waiting to be invested.
“Tighter EU legislation is leading to a number of divestments from the European deals that do complete,” says one corporate partner.
