Leveraged Buyouts in the U.K. and Continental Europe: Retrospect and Prospect

Management buy-outs have become a global phenomenon. This paper examines the key market trends in the UK and Continental Europe and identifies challenges for the future development of the market. Key recent trends include: buy-out funds raised have exceeded funds invested; evidence from Continental Europe indicates an intention by institutional investors to increase their commitment; private equity firms from the United States have become more prominent investors in European buy-outs; increased competition has come from hedge funds and new entrants such as government-sponsored operators, family offices and wealthy entrepreneurs; major changes in deals have been the growth of secondary buy-outs and public-to-private buy-outs; recent lower interest rates have been associated with a rise in debt; size of deal syndicates is increasing in very large deals; average share price reaction to the PTP announcement in the UK during 1997-2003 was 30%; secondary buy-outs have become an important exit route, and there is an increasing number of tertiary or quaternary buy-outs. Future challenges include: realizing the scope for attractive deals from restructuring larger corporations in Continental Europe; encouraging succession planning that will result in buy-outs involving family-owned firms; further differentiation between private equity firms in order to generate upside gains; addressing the competitive challenge to existing financiers from hedge funds; reconciling concerns about the medium term economic performance of European economies and the degree of leverage in buy-out deals; and secondary buy-outs raise major challenges relating to whether managers are buyers or sellers, and the attitudes of limited partners.