Multiple Issue. Solid start, healthy outlook. Private Equity Transaction Advisory Services

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1 Multiple Issue Private Equity Transaction Advisory Services Solid start, healthy outlook Activity in the European buyout market is holding up and the IPO exit route continues to prove attractive, with nine flotations out of the top 20 exits this quarter. So, is the private equity industry heading toward full recovery?

2 Welcome About Multiple Multiple is a quarterly publication summarizing trends in buyouts* across Europe. EY and Equistone Partners Europe are proud to sponsor the Centre for Management Buyout Research (CMBOR), whose data is analyzed in Multiple. The following analysis and commentary is based on research recorded by CMBOR. Countries covered: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Romania, Spain, Sweden, Switzerland, Turkey and the UK. *Buyouts: CMBOR defines buyouts as over 50% of shares changing ownership, with management or private equity, or both, having a controlling stake upon deal completion. Equity funding must primarily be from private equity funds and the bought-out company must have its own financing structure, e.g., management buyout (MBO) or management buy-in (MBI). For full details on the CMBOR methodology, please refer to page 15. Multiple April

3 Contents 4 Headlines 5 Pipeline prospects 6 Current conditions 7 Market watch 8 Deal dynamics 9 Sector insights 11 Country spotlight 16 Contacts 17 Further insights The European private equity (PE) market picked up toward the end of the quarter, leaving total deal volume above the levels seen in previous quarters. Looking ahead, it is likely that sell-side activity will continue to dominate over the coming months, with IPOs being the preferred exit route. We continue to see overseas corporate buyers attracted to European PE assets, driven by high levels of available cash and a willingness to pay high valuations for businesses that offer a clear strategic fit. It is also encouraging to see a healthy deal pipeline. A number of deals are likely to complete over the next three months, with Germany looking particularly strong. Whether this upsurge in activity contributes to the full recovery of the European PE industry remains to be seen, but the signs are certainly positive. Sachin Date, Europe, Middle East, India and Africa (EMEIA) Private Equity Leader, EY The data in this report was captured on 2 April Multiple April

4 Headlines Deal activity holds up The PE deal market has started the year rather slowly. However, a strong end to the quarter meant that Q1 closed with 143 deals completed. This compares with the 135 deals completed in the final quarter of 2013, and the 138 deals wrapped up in the first quarter of last year. The aggregate value of this quarter s deals was 14.3b. Although this is up on the 13.8b recorded in the previous quarter and down on the 20.7b seen in Q3 2013, it is broadly in line with the opening quarters of each of the last four years. UK assumes dominant market position Of the quarter s 143 deals, 48 came courtesy of the UK more than double the contribution of France (23 deals), the next-best performer. On value, the UK s position was even more dominant, with its 5.2b representing 36% of European buyout value in Q Deal value in Germany totaled 2.8b this quarter, buoyed by the 2b Scout24 buyout. France started the year with a total quarterly value of 1.5b, in line with the previous quarter. Deal volume was up across the Nordics particularly in Denmark, which recorded its largest number of deals (12) since Return of the megadeal This quarter has seen two 1b-plus buyouts: the 1.2b Unit4 deal in the Netherlands and Scout24, which achieved an enterprise value of 2b. Considering that there had not been a deal valued at 1b or more since Q3 of last year, it is encouraging that two completed this quarter. Looking ahead to the second quarter, a number of larger deals are in the pipeline, with a significant number originating from Germany. Lower mid-market struggles Q confirmed the slowdown in lower mid-market deals ( 25 to 100m) seen in Q In this range, only 17 deals equating to 896m were completed the lowest quarterly numbers for at least four years. This compares with the 30 deals and 1.75b recorded in Q Secondaries suffer as UK IPO market remains strong The popularity of the public markets as a preferred exit route continued in the first quarter of this year, with nine IPOs achieving a total value of 9b. This continues from where 2013 left off, with a total 25.1b raised through 20 IPOs. The number of secondary buyout exits fell to 36 in Q1 2014, with a value of just 3b the lowest volume since Q and the lowest value since Q Trade sales rebound as Eurozone settles down Trade sale values were strong, at 6.2b in the quarter. This is up substantially on the 4.5b recorded in the previous quarter and the 5.0b seen in the first quarter of However, the number of trade sales was down from 37 in the last quarter to 31. The higher average value demonstrates that foreign buyers see European assets as more attractive than they were during the depths of the Eurozone crisis, with 6 of the 10 largest trade sales involving overseas corporate buyers. European buyouts volume and value Total value ( m) 2009 Total number 5,127 4,153 4,668 6,306 12,072 11,712 12,660 21,617 14,649 15,711 18,082 15,004 Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Total value ( m) 2012 Total number 14,148 11,937 14,912 13,963 Q1 Q2 Q3 Q ,975 8,882 20,652 13,754 Q1 Q2 Q3 Q ,260 Q1 Q2 Q3 Q4 143 Source: CMBOR; Equistone Partners Europe; EY year 2014 to end Q1 only Multiple April

5 Pipeline prospects A series of major buyouts are pending, so the pipeline for the second quarter of 2014 looks strong. We anticipate a number of completions and exits during the coming months. Bain Capital, Advent International and Danish pension fund ATP have agreed to buy Nets Holding, the Nordic card-payment company, for a total consideration of DKK17b (source: Nets press release). And UK buyout firm Charterhouse Capital Partners has entered into a definitive agreement for the acquisition of the Ireland-based company SkillSoft Limited, a provider of online learning solutions (source: SkillSoft press release). Both deals are set to exceed 1b. Babcock International Group PLC, a UK engineering support services company, has also entered into an agreement with Investindustrial and KKR to acquire Avincis for an enterprise value of approximately 2b (source: KKR press release). In France, Materis has finalized the sale of Kerneos to the French investment fund Astorg Partners and has entered into exclusive talks with CVC regarding the sale of Parex, its building material business, for 880m (source: Reuters). And Triton Partners has agreed to acquire the auxiliary components business of Alstom SA for an enterprise value of around 730m (source: Triton press release). There are several large secondary buyouts and corporate divestment deals ( 1b-plus) in the pipeline for Germany, in the medical, chemicals and materials or industrials sectors, such as the sale of GEA s heat exchangers division (source: Reuters). Germany looks set to bounce back yet again and post strong results in Q2. The exit pipeline also offers promise for the upcoming quarters and suggests that the IPO exit route will remain popular. Companies such as Card Factory, the British greeting cards retailer, are said to be planning a flotation during 2014 (source: telegraph.co.uk). Pipeline 14b from 17 deals With the final month of last year experiencing heightened activity, it left the European PE pipeline lighter going into However, activity picked up toward the end of the first quarter, leaving volumes consistent with previous quarters. A healthy number of deals are in the pipeline and are likely to complete during the second quarter. Sachin Date EMEIA Private Equity Leader, EY Multiple April

6 Current conditions Trade sales continue to offer a viable exit route, in particular for the bigger assets, as the average trade sale value this quarter, at 200m, was the highest since the last quarter of This is consistent with the findings of the latest EY Global Capital Confidence Barometer (CCB), a survey of more than 1,600 executives, suggesting that increasing deal value could be the M&A story of the next 12 months. Companies intentions to engage in larger deals (greater than US$500m) over the next year were up strongly in the survey, having doubled in 12 months. The 3.1b trade sale of German manufacturer Grohe, the second-largest exit this quarter, went to joint Japanese buyers Lixil and the Development Bank of Japan. The trade sale of Spanish consulting firm Everis went to Japanese buyer NTT Data. The strong interest of overseas buyers for European assets (6 of the 10 largest trade sales in Q1 2014) is a sign that companies are looking at balancing investment in emerging and mature markets. Emerging markets remain very important BRICs for medium-term growth and non- BRICs for longer-term growth. However, developed markets are critical for precious short-term growth. The resurgence of mature-market investment intentions is evidenced by the CCB respondents desire to invest in the US, UK and Germany. A large proportion of trade sale exits have originated from Asian and US buyers, with fewer European-based buyers emerging. This, perhaps, points to continued Eurozone volatility and domestic investors feeling less confident about investing large amounts of capital for assets. US and Asian buyers have an appetite for European assets, which are viewed as a strategically important footprint in one of the largest single market economies in the world. It is worth noting, however, that only 3 of the top 10 exits for this quarter came from the Eurozone, with two deals from Germany and one from Spain. Sachin Date, EMEIA Private Equity Leader, EY Q Q Q deals 14.3b 135 deals 13.8b 138 deals 13.0b Multiple April

7 Market watch PE-backed IPOs are the exit route of choice Looking at the top 20 exits so far this year, the public markets were the preferred exit route in the UK, Denmark and Sweden, with nine IPOs achieving a total value of 9b. This continues from where 2013 left off, with a total 25.1b raised through 20 IPOs last year across Western Europe. Of the IPOs this year, six out of the nine listed in the UK, showing the strength and attractiveness of the UK public markets. Two of the largest IPOs listed in Denmark. This included the stock market flotation of ISS the biggest public listing on a Nordic exchange for 14 years in terms of market capitalization. But the downside for PE is that this is having a material impact on the secondary buyout market. Secondary buyout volume and value fell during Q1. There were just 36 secondary buyouts, valued at a total of 3b the lowest quarterly value since the third quarter of While the opening of the public markets is helping the industry to reduce its exit backlog, the increasing popularity of IPOs as an exit route is intensifying competition for PE-backed assets. PE houses looking to acquire assets through secondary buyout are facing stiff competition from the high multiples being commanded by IPO valuations. This is having a significant impact on secondary buyout activity. As a result, both volume and value are down quite considerably. Creditor exits still low For the second consecutive quarter, there were just five creditor exits (e.g., firms going into administration). This remarkably low number confirms the picture of a healthier mix of exits and the positive outlook for the PE market in 2014, as economic prospects continue to improve. Largest European exits, Western Europe, Q Company name Country Exit month Vendor Exit value ( m) Exit type ISS Denmark 3 EQT Partners 3,970 Flotation Friedrich Grohe Germany 1 Texas Pacific Group, Credit Suisse First Boston Ltd 3,060 Trade sale Pets at Home UK 3 Kohlberg Kravis Roberts 1,466 Flotation Brit Insurance UK 3 CVC Capital Partners, Apollo Global Management 1,149 Flotation Poundland UK 3 Warburg Pincus 898 Flotation OW Bunker Denmark 3 Altor Equity Partners 710 Flotation ATU Germany 1 Kohlberg Kravis Roberts 600 Trade sale Skrill UK 2 Investcorp Technology Partners 597 Secondary buyout Everis Spain 1 3i, Hutton Collins 563 Trade sale Callcredit Information Group UK 2 Vitruvian Partners 486 Secondary buyout Laboratorios Indas Spain 1 Vista Capital de Expansion, Portobello Capital 400 Trade sale Marlin Group UK 2 Duke Street Capital 358 Trade sale Alexander Mann Solutions UK 1 Graphite Capital 313 Secondary buyout Martin McColl Retail Group UK 2 Caird Capital 243 Flotation TDX Group UK 2 Investcorp 243 Trade sale Hotter Group Holdings UK 1 Gresham LLP 240 Secondary buyout Zenith Vehicle Contracts UK 3 Morgan Stanley Capital Partners 239 Secondary buyout DX Services (DX Group) UK 2 Arle Capital Partners 207 Flotation FinnvedenBufab Sweden 2 Nordic Capital 198 Flotation Manx Telecom UK 2 HgCapital, CPS Partners 195 Flotation Source: CMBOR; Equistone Partners Europe; EY year 2014 to end Q1 only Multiple April

8 Deal dynamics Haggling halts deal momentum Deals have been repeatedly coming back to committee as vendors seek to achieve a higher price. In 2012 and 2013, some deals proceeded more quickly, as they went through at a price that was agreed earlier in the process. Smaller deals are especially scarce and quality assets are still generating strong competition in the market, so vendors are therefore looking to edge up prices. Investors under pressure The resurgence of IPOs presents a challenge for some investors who, while reaping the benefits of distributions, are facing the challenge of where to reinvest capital. Having returned money to institutional investors (LPs) through exits, some private equity investors (GPs) will find themselves under pressure to redeploy some of their funds. Refinancing slightly down This quarter has seen lower refinancing value, at 9.3b. This compares with 10.5b in Q and 9.7b in the first quarter of last year. This may be because PE houses considering an IPO may not want to load up companies with more debt. Debt down, equity ratio up In terms of structure, debt accounted for less than 50% of the deals in the 100m-plus range. At 47.2%, the level of debt was slightly lower than the 51.6% recorded in At the same time, the equity ratio in this bracket increased from 41.9% in 2013 to 52.5% in the first three months of the year, with very little mezzanine finance or loan note used in deal structuring so far. After the significant increase in debt-to-equity ratios across Europe in 2013 which was caused in part by new players entering the market buyout activity in Q has benefited from the increased availability of equity funding. Leveraged loan banks and funds are being hit from the IPO market on one side and high-yield refinancing on the other; they are needing to get capital into good portfolio companies to maintain their market share. Staying competitive means accepting higher gearing, weaker covenant structures and lower margins. Chris Lowe, Debt and Capital Advisory Partner, EY, UK For more information visit ey.com/uk/cdainsights. Deal size Q Q b plus 500m 1b 100m 500m Up to 100m Total number of deals Source: CMBOR; Equistone Partners Europe; EY year 2014 to end Q1 only Multiple April

9 Sector insights Manufacturing was the standout sector by volume. Its 49 deals were significantly up on the 30 recorded in the last quarter and more than double that contributed by the second-place sector, business and support services (BSS). Buyout value was highest in technology, media and telecommunications (TMT). But much of the sector s 4.1b in value was accounted for by the Unit4 NV deal. Behind TMT, BSS led the way in value with 2.3b. It thus regained the top position by value, having slipped behind manufacturing last year. Manufacturing Q deals 158 deals 2.1b 12.9b BSS Q deals 79 deals 2.3b 10.8b But the real story was the return of financial services. At 2.1b, the sector posted its highest quarterly buyout value since at least The figure was more than double that of the previous quarter, as the sector saw 4 of Europe s 15 largest buyouts. TMT Financial services It is increasingly uncertain that Eurozone banks will be able to achieve pre-crisis levels of credit growth in the foreseeable future. In fact, many remain under pressure to exit non-core businesses and reduce their overall leverage. Q deals 77 deals 4.1b 7.1b Q deals 35 deals 2.1b 2.5b Robert Cubbage, EMEIA Banking & Capital Markets Leader, EY Source: CMBOR; Equistone Partners Europe; EY year 2014 to end Q1 only For more information visit ey.com/fseurozone. Multiple April

10 Sector insights (continued) Largest buyout deals, Western Europe, Q Company name Country Deal month Investor Sector Value ( m) Scout24 Holding Germany 3 Hellman & Friedman Media 2,000 Unit4 NV Netherlands 3 Advent International IT 1,174 Trader Media UK 3 Apax Partners Media 741 Altamira Asset Management Spain 1 Apollo Management Financial services 664 Vat Holding Switzerland 2 CapVis Equity Partners Partners Group Engineering 653 Kerneos France 3 Astorg Partners Chemicals 600 Skrill UK 2 CVC Capital Partners, Investcorp Financial services 597 Callcredit Information Group UK 2 GTCR Financial services 486 Well Intervention Services Business (Aker) Norway 1 EQT Partners Energy 475 Mergermarket UK 2 BC Partners Business services 464 R Griggs Group UK 1 Permira Footwear 381 Eddie Stobart Logistics UK 3 DouglasBay Capital Transport 336 Acino Switzerland 1 Nordic Capital, Avista Capital Partners Health care 325 Alexander Mann Solutions UK 1 New Mountain Capital Business services 313 Heidelberger Lebensversicherung Germany 3 Cinven, Hannover RE Financial services 300 Nuova Castelli Italy 2 Charterhouse Capital Partners Food 300 De Vere Venues Group UK 3 Starwood Capital Group Business services 278 Hotter Group Holdings UK 1 Electra Partners Retail 240 Zenith Vehicle Contracts UK 3 Hg Capital Business services 239 INSEEC Group France 1 Apax Partners Business services 221 Source: CMBOR; Equistone Partners Europe; EY year 2014 to end Q1 only Multiple April

11 Country spotlight UK Q1: 5.2b from 48 buyouts largest deal: 741m The UK continued its consistent performance. It accounted for 36% of all buyout value in Q1 2014, when it generated 5.2b from 48 deals. This is 1b higher than the value of Q1 2013, when 4.2b was garnered from 41 deals. For the second quarter running, no 1b-plus buyouts were recorded in the UK. However, mid-market activity has been quite strong contributing nearly 50% of the total European market value. The UK accounted for half of the 20 largest deals in Europe. This demonstrates that investors still value the security of sterling. The biggest deal was the sale of the Trader Media Group, owner of the UK s leading website for car sales, from Guardian Media Group to Apax Partners. Exits have remained strong. IPO led in terms of value with 4.2b, compared with 2.2b from secondary buyout and 0.9b from trade sales. However, for volume, secondary buyout and trade sales led the way with 15 and 14 deals, respectively. High valuations are being achieved in the frothy IPO market. This makes it the biggest competitor to PE on the buy side. However, it s also a strong potential source of value on the exit side. Bridget Walsh, United Kingdom and Ireland Private Equity Leader, EY Multiple April

12 Country spotlight (continued) Germany Q1: 2.8b from 13 buyouts largest deal: 2b Germany s buyout market saw a rise in value compared with the last quarter of With a total of 2.8b in Q1 2014, it is more than double the value of Q However, at 13 deals, volume was down 35% on the previous quarter. This confirms the recent pattern in Germany of wildly varying quarterly average deal values. While Germany completes fewer deals than the UK, the ones it does tend to be at the bigger end of the scale. For example, it recorded Europe s largest buyout deal in the quarter when Deutsche Telekom sold its majority stake in Scout24 Holding to Hellman & Friedman LLC for an enterprise value of 2b. Although Germany only recorded one megadeal this quarter, there is a healthy level of large secondary buyouts and corporate divestments ( 1b-plus) deals in the pipeline in the industrials, chemicals and materials or medical sectors. Germany also claimed the second-largest exit of the quarter in Western Europe through the trade sale of Grohe, the country s biggest bathroom fittings company, to joint Japanese buyers Lixil and the Development Bank of Japan. The deal was valued at 3.1b. In total, the first three months of 2014 have seen 4.2b returned to investors through 10 exits. Multiple April

13 Country spotlight (continued) France Q1: 1.5b from 23 buyouts largest deal: 600m With 1.5b of deals completed during the first three months of 2014, the value of the French buyout market remained consistent with the last quarter of However, it was 30% lower than the same period last year ( 2.1b). Deal volume rose from 18 deals in Q to 23 deals in Q but, again, volume was down compared with the first quarter of Kerneos, a producer of chemicals and materials used in the construction industry, was the country s largest completed buyout of the quarter. It was valued at 600m when it was acquired by French PE firm, Astorg Partners. The French exits market has been down considerably in terms of value. With a total of 496m, Q was the lowest quarter since Q However, volume has been holding up. With 15 exits, France was the second-most active market after the UK (39). Looking ahead to the next months, a number of significant upper mid-market deals are in the pipeline. While debt financing is increasingly available both unitranche and senior debt deal processes are still relatively slow, due to the ongoing valuation gap between sellers and buyers. Laurent Majubert, Private Equity Partner, EY, France Multiple April

14 Country spotlight (continued) The Netherlands Q1: 1.4b from 9 buyouts largest deal: 1.2b The Dutch buyout market topped the 1b mark for only the third time since In Q1 2014, it was among the four most active markets in Western Europe by value. These impressive numbers were due, in large part, to the quarter s second-largest deal in Europe: the 1.2b acquisition of Dutch software company Unit4 NV by global private equity firm Advent International. The Netherlands saw nine deals completed in Q1 2014, one less than Q (10) and equal to Q (9). On the exits side, there has been one secondary buyout and one trade sale so far this year, raising 225m. This value is significantly higher than the last quarter of 2013 ( 46m) and the first quarter of last year ( 95m). Multiple April

15 CMBOR methodology The data only includes the buyout stage of the PE market (MBO, MBI, institutional buyout (IBO) and buy-in management buyout (BIMBO)) and does not include any other stage, such as seed, start-up, development or expansion capital. Unless otherwise stated, the data includes all buyouts, whether PE-backed or not, and there is no size limit to deals recorded. In order to be included as a buyout, over 50% of the issued share capital of the company has to change ownership, with either management or a PE company, or both jointly, having a controlling stake upon deal completion. Buyouts and buy-ins must be either management-led or led by a PE company using equity capital primarily raised from one or more PE funds. Transactions that are deemed not to adhere to the PE, MBO or MBI model are not included. Transactions that are funded from other types of funds, such as real estate and infrastructure, are not included. Deals in which a PE firm buys property as an investment are not included. In order to be included, the target company (the buyout) must have its own separate financing structure and must not be held as a subsidiary of a parent holding company after the buyout. Firms that are purchased by companies owned by a PE firm are treated as acquisitions and are not included in the buyout statistics. However, these deals are recorded in the acquisitions by buyout companies statistics. All quoted values derive from the total transaction value of the buyout (enterprise value) and include both equity and debt. The buyout location is the location of the headquarters of the target company and it is not related to the location of the PE company. The quarterly data only counts information on transactions that formally close in that quarter and does not include announced deal information. Multiple April

16 Contacts Sachin Date EMEIA Private Equity Leader sdate@uk.ey.com Belgium Central and Southeast Europe Commonwealth of Independent States France Germany, Switzerland and Austria Italy Luxembourg Netherlands Nordics Spain Turkey United Kindgom and Ireland Marketing: Pierre Vigouroux Transaction Advisory Marketing pierre.vigouroux@fr.ey.com For more information, please visit ey.com/multiple. Multiple April

17 Further insights Global Private Equity Watch 2014 PE has started 2014 with a renewed sense of confidence via an improvement in fund-raising conditions and an increase in exit pace and options. View report For more information visit ey.com/privateequity. Global IPO Trends 2014 Q1 The global IPO market is off to a very good start in This has been the best-performing first quarter since 2011 in terms of both number of IPOs and capital raised. View report For more information visit ey.com/ipocenter. Capital Insights How can companies combine the best traditional business methods with innovative approaches to help shape their destinies? View report For more information visit capitalinsights.info. Global Integration Survey 2014 Our survey reveals five key practices that companies need to follow in order to deliver on their strategic goals when it comes to postdeal integration. View report For more information visit ey.com/mergerintegration. Global Capital Confidence Barometer April 2014 The Global Capital Confidence Barometer surveyed a panel of more than 1,600 executives to identify boardroom trends and practices in the way companies manage their capital agendas. View report For more information visit ey.com/ccb. Global Corporate Divestment Study 2014 The 2014 Global Corporate Divestment Study focuses on how companies review their portfolios and the leading practices of those that are able to maximize divestment outcomes. View report For more information visit ey.com/divest. Multiple April

18 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. About EY s Transaction Advisory Services How you manage your capital agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more informed decisions about strategically managing capital and transactions in fast-changing markets. Whether you re preserving, optimizing, raising or investing capital, EY s Transaction Advisory Services combine a unique set of skills, insight and experience to deliver focused advice. We help you drive competitive advantage and increased returns through improved decisions across all aspects of your capital agenda EYGM Limited. All Rights Reserved. EYG no. DE0537 EMEIA Marketing Agency ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/multiple EY recognized by mergermarket as top of the European league tables for accountancy advice on transactions in calendar year 2012 and 2013 The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.