Buy & build activity in Europe weak due to political uncertainty
Munich, London, Paris — European buy & build activity in the first half of 2018 fell by 12% compared to the same period last year. The reason for this is presumably concerns about the impending Brexit, which are dampening the otherwise buoyant mood on the markets in the UK and Ireland. This is shown by the current European Buy & Build Monitor of the private equity firm Silverfleet Capital.
The Buy & Build Monitor measures global add-on activity by European-based and private equity-financed companies; for the first half of 2018, it preliminarily identifies 287 acquisitions compared to 327 in the same period last year. The total value of deals fell from €5.8 billion in the first half of 2017 to €4.65 billion in the first half of 2018.
In the first half of 2018, only eight acquisitions with a transaction value of more than £60 million or €70 million were disclosed. The number thus fell significantly compared with the same period last year, when 21 acquisitions were published. — The largest purchase of the half was the acquisition of the convenience stores of The Kroger Co. EG Group, backed by TDR Capital, acquired them for $2.15 billion.
Geographic trends
There were sharp declines in the UK, Ireland and Scandinavia: The number of deals in the UK and Ireland fell from 67 in the first half of 2017 to 50; this development is presumably due to the impending Brexit, which is discouraging British companies from making acquisitions in their own country. The number of acquisitions made by non-UK companies in the Kingdom remained constant.
In Scandinavia, only 41 acquisitions were completed in the first half of 2018, compared to 74 completed in the prior-year period. Sweden proved to be particularly active with 26 acquisitions. However, this was offset by low activity in Denmark and Norway, which reported only eight acquisitions in total. In Norway, this is probably due to low M&A activity in offshore oil and gas production.
The largest increase in Buy & Build was achieved in the DACH region. With 38 acquisitions in the first half of 2018, the number increased by 31% compared to 29 acquisitions in the same period last year. Thus, activity continues to recover and reached the highest level compared to previous years.
France, the Benelux countries and Italy saw their performance deteriorate, in line with the trend of generally weaker activity in the first half of 2018. Data for Spain & Portugal, Central & Eastern Europe, and Southeastern Europe were in line with those for the first half of 2017.
Non-European add-on activity accounted for 12% of total add-on volume, a similar ratio to previous years. However, there was a notable decrease in the number of acquisitions in North America compared to previous years. Data for other regions are consistent with last year’s data.
There was an add-on in Silverfleet Capital’s portfolio in the first half of 2018: microGLEIT, a niche supplier of lubricants based in Germany, was acquired by a majority stake from Silverfleet Capital’s portfolio company Conventya, a French specialist in specialty chemicals for surface finishing. This transaction marks Coventya’s third acquisition since Silverfleet joined the company in May 2016.
“After peaking last year, buy-&-build activity was significantly subdued in the first half of this year, despite continued favorable economic conditions,” said Neil MacDougall, managing partner at Silverfleet Capital. “We believe that politics is at least partly the reason for this trend. In the U.K. and Ireland, the sharp decline in national acquisitions can be explained as a precautionary measure in the wake of the impending Brexit. The decline in buy-&-build activity by European companies in North America may be due to the introduction of export tariffs. Equally, however, it could be that U.S.-based buyers are more determined than Europeans.”
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(1) Methodology
The information used in the Silverfleet Buy & Build Monitor is prepared by Mergermarket. They exclusively include follow-on acquisitions of companies where more than 30% of the equity is held by a private equity fund and where the platform company is based in Europe.
The value of the acquisitions must exceed €5 million or the target company must have sales of at least €10 million to be included in the ranking. One challenge here is always that data from the most recent quarter is often not complete. Smaller acquisitions in particular are not yet fully covered, and details may only become known after our analysis has been completed. We therefore add a pro forma premium of 14% to the figures for the first half of 2018 in order to make trend statements. Our analysis for the second half of 2017 indicates that this is in line with the adjustment that would have been required to accurately estimate add-on activity in the first half of the year.
Applying the methodology described above, we have applied a pro forma mark-up of 35 transactions to the figures for the first half of 2018. However, it is hardly possible to draw detailed conclusions such as regional breakdowns from the pro forma figures. Therefore, we decided against it.
About Silverfleet Capital
Silverfleet Capital has been active as a private equity investor in the European mid-market for more than 30 years and currently manages around €1.2 billion with its 29-strong investment team in Munich, London, Paris, Stockholm and Amsterdam.
Eight investments have already been made from the second independent fund closed in 2015 with a volume of 870 million euros: The Masai Clothing Company, a women’s fashion wholesaler and retailer headquartered in Denmark; Coventya, a French developer of specialty chemicals; Sigma Components, a British manufacturer of precision components for civil aviation; Lifetime Training, a British provider of training programs; Pumpenfabrik Wangen, a manufacturer of specialty pumps based in Germany; Riviera Travel, a British operator of escorted group tours and cruises; 7days, a Westphalian supplier of medical workwear; and Prefere Resins, a leading phenolic and amino resin manufacturer in Europe.
Silverfleet achieves value growth through its “buy to build” investment strategy. As part of this strategy, Silverfleet is accelerating the growth of its subsidiaries by investing in new products, production capacity and employees, installing successful retail formats or making follow-up acquisitions. Since 2004, Silverfleet Capital has invested €1.9 billion in 28 companies.
Silverfleet specializes in four key industries: Business and Financial Services, Healthcare, Manufacturing, and Retail and Consumer Goods. Since 2004, the private equity investor has invested 33 percent of its assets in companies headquartered in the DACH region, 31 percent in the UK and Ireland, 19 percent in Scandinavia and 17 percent mainly in France and the Benelux countries (1).
Silverfleet Capital has a solid investment track record. Most recently, Silverfleet sold Ipes, a leading provider of outsourcing services to European private equity firms (investment multiple 3.8x); CCC, one of the leading BPO services providers in Europe, and Cimbria, a Danish manufacturer of agricultural equipment (2); Kalle, a German manufacturer of artificial sausage skins (investment multiple 3.5x); OFFICE, a British shoe retailer (investment multiple 3.4x); and Aesica, a leading pharmaceutical CDMO company (investment multiple 3.3x).