As the US goes private equity crackers, credit strategists at Merrill Lynch in London are feeling a little left out.
In a report - “Where are all the LBOs?” - published today, Barnaby Martin and Teo Lasarte ask why so few deals have materialised in Europe this year. Despite almost daily speculation and some notable headlines, the actual record in 2006 has been sparse, they point out, with VNU being the only successful sponsored public-to-private transaction to date.
That despite the fact that average EV/ebitda multiples are lower in Europe, while free cash flow and dividend yields are higher.
To explain the curious absence of LBOs, the pair point to the continuing sale of assets by companies, offering easy deals to the private equity groups, challenges posed by local laws, complex shareholder structures and the increased use of leveraged acquisition techniques by companies in their own M&A.
“It would seem that the private equity risk looks to be much more of an issue for US credit investors than for European ones,” they say.
But for those investors hoping to steer clear of the private equity mayhem by remaining on this side of the pond, there is bad news.
Martin and Lasarte expect there to be an increase in deals next year - but with European equities up 15 per cent in 2006 and an increase in short-term rates, finding deals that offer a juicy enough return may start to become more challenging for the private equity houses.
The analysts run the ‘base case’ numbers on a sample of European names to assess their potential. Top of the list? Vivendi, Michelin and OTE.
