Dramatic drop in average UK PE deal size 

Third quarter management buyout activity has seen a dramatic drop in the average size of deals to £80m; compared with £140m in the second quarter of 2011 and comparable with the first quarter of 2009.  At the same time, over 20% of the deals recorded in the third quarter were acquisitions of distressed or underperforming businesses.

Michael McDonagh, private equity partner at KPMG, commented: “Last year we were heralding the revival of ‘big ticket’ private equity deals; some of which were retailers bucking the macro-economic trends.  Indeed mega deal activity continued well into the first half of this year with the announcement of two, billion pound deals.  However, in recent months there has been a sea change in private equity deal activity.  Uncertainty has returned making debt markets less predictable and larger deals more difficult.  Instead we are seeing turnaround specialists and profit improvement investors coming to the fore, looking to pick up distressed businesses; businesses taken on by the banks via debt for equity swaps and disposals of non-performing loan portfolios by the banks.  While the UK has a specialist group of so-called ‘turnaround’ investors, we have seen a number of US private equity houses flying in and looking at opportunities in the UK.”

Will Wright, restructuring director at KPMG, who led the sale of Alexon to Sun Europe, added: “Suppressed interest rates may have put more cash in mortgage borrowers’ pockets - buying retailers and consumer-dependent businesses more time – but this time is fast running out.  We are now seeing these companies, trying to support pre-recession business structures, becoming increasingly distressed as they battle prevailing economic head winds.  With the low growth environment predicted to continue for some time to come, private equity and turnaround investors will play an important role in bringing their capital to the table to salvage the viable parts of distressed businesses.”

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For further information please contact:

KPMG Press office: 0207 694 8773 or margot.cowhig@kpmg.co.uk

Notes to Editors:

About KPMG

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff.  The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.