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Capital Markets

Corporates cosy up as private equity gets cold feet

“Debt providers are becoming more selective about the opportunities they are willing to support and are now concentrating on companies with good forward earnings visibility”- James Stewart, ECI

“Debt providers are becoming more selective about the opportunities they are willing to support and are now concentrating on companies with good forward earnings visibility”
James Stewart, ECI

While UK corporates are busy digging deeper and deeper into their pockets to finance acquisitions, private equity firms have shifted their focus to selling. Given private equity’s excellent track record for buying low and selling high, and corporates’ rather less enviable reputation for value destructive mergers, should private equity’s retreat make corporates think twice? UK M&A is soaring. The volume of announced deals in the first quarter of 2006 increased 43% over the same period in 2005 to $109 billion, according to Thomson Financial.

But while corporates are rushing to the altar, private equity, it seems, has got cold feet. According to the Centre for Management Buy-out Research, the value of UK buyouts has collapsed from £5.2 billion in the first quarter of 2005 to just £3.1 billion ($5.5 billion) in the first quarter of 2006. The fall has come particularly from a dramatic collapse in the volume of public-to-private deals, which this quarter consisted of just four deals worth £485 million.

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