Buy & build activity: highest in 20 years in H1 2019
Munich, London, Paris — According to the latest European Buy & Build Monitor from private equity firm Silverfleet Capital, European buy & build activity reached its highest level ever in the first half of 2019; this is largely due to increased activity in Scandinavian countries. The Buy & Build Monitor counts 368 add-on acquisitions for the first half of 2019, up from 338 acquisitions in the first half of 2018. Buy & build activity outperformed both mid-market M&A and European buy-out indices. Scandinavia was the most active region, recovering from a weak 2018. The United Kingdom and Ireland recorded subdued performance compared with a more active overall market. Performance of the DACH region was weak compared to the first half of 2018
The Buy & Build Monitor measures the global add-on activities of private equity-financed companies headquartered in Europe. For the first half of 2019, a preliminary figure1 of a total of 368 add-ons with a transaction volume of EUR 2.4 billion was determined, which represents an increase of 9% compared with 338 acquisitions in the first half of 2018. This is the highest value since Silverfleet began recording in 1998.
Eight add-ons with a transaction volume of more than EUR 65 million were recorded in the first half of 2019, compared to nine add-ons of this size in the first half of 2018. However, both the total volume of all transactions (to 2.4 billion euros) and the average transaction volume (to 70 million euros) declined2.
Buy & Build activity exceeds mid-market M&A and European buy-out indices
In recent years, the volume of European add-on acquisitions has regularly lagged behind the mid-market M&A as well as the European buy-out indices. However, there were several signs in the first half of 2019 that this trend could end, as the number of add-ons exceeded both indexes.
The most active region in the first half of 2019 was Scandinavia, with 72 add-ons — a figure last recorded in the first half of 2017. The United Kingdom and Ireland took second place with 58 add-ons. This marks a sharp decline compared with previous years and may be attributable to Brexit concerns, which could deter some companies from pursuing a buy & build strategy in this region.
There was a noticeable increase in add-on activity in Eastern Europe, Southeastern Europe, North America, and the Benelux countries. In comparison, the DACH region — normally one of the regions with the highest Buy & Build activity — recorded a poorer performance compared to the first half of 2018, possibly due to a more challenging overall economic situation. The Iberian Peninsula and the rest of the world (with the exception of North America) also showed a decline in activity.
The observation period also includes a buy & build transaction by Silverfleet Capital: the portfolio company Prefere Resins bought the melamine and paraformaldehyde divisions of the private equity-backed chemicals group INEOS. The leading group’s product competence in phenolic, amino and melamine resins, as well as high-quality derivatives of methanol (C1) chemistry, has thus once again been significantly increased.
Recently, Silverfleet supported the merger of Microgen and Touchstone to create a leading technology provider for the trust and corporate services market. The merger is subject to the approval of the competition authority. The deal will appear in the next Buy & Build monitor.
Commenting on the findings, Gareth Whiley, Managing Partner of Silverfleet Capital, said: “Add-on activity in Europe in the first half of 2019 has reached its highest level since our survey began in 1998. Interestingly, it also shows that the previous synchronization of add-on activity with the hustle and bustle of the private equity and M&A markets may have come to an end for the time being — as the latter are showing signs of a downturn in the first six months of 2019. Buy & build is therefore, in our view and especially in an uncertain environment, all the more a particularly suitable value-add vehicle for private equity investors.”
The full report can be found here: https://www.silverfleetcapital.com/assets/filemanager/content/buy-and-build-monitor/2019H1_buy_and_build_report.pdf
The data 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 one or more private equity funds 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. Data sets reported by other reporters do not appear to have this minimum size threshold and are therefore not directly comparable.
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. Therefore, a pro forma markup of 20% is applied to the figures for the first half of 2019 for this report in order to be able to make trend statements. Our analysis for the second half of 2018 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.
Accordingly, we have added a pro forma markup of 62 transactions to the figures for the first half of 2019. However, it is hardly possible to draw detailed conclusions such as regional breakdowns from the pro forma figures — this report therefore does not include such figures. It should also be noted that several potentially relevant transactions were not included in the analysis because the percentage of equity held by the participating platforms or add-on acquisitions was not published for them.
2 2.4 billion total transaction value in only 35 transactions where concrete figures were published (corresponds to a share of 11% of transactions). The fluctuating average transaction values are probably due to the trend of not publishing corresponding figures.
About Silverfleet Capital
Silverfleet Capital has been active as a private equity investor in the European mid-market for more than 30 years. The 32-strong investment team works from Munich, London, Paris, Stockholm and Amsterdam.
Ten 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 UK-based manufacturer of precision components for civil aviation; Lifetime Training, a UK-based provider of training programs; Pumpenfabrik Wangen, a Germany-based manufacturer of specialty pumps; Riviera Travel, a UK-based operator of escorted group tours and cruises; 7days, a German supplier of medical workwear; Prefere Resins, a leading phenolic and amino resin manufacturer in Europe; CARE Fertility, a leading operator of fertility clinics in the UK; and BOA Purified & Flexible Solutions, a leading designer and manufacturer of custom high purity metal tubing for critical industrial applications.
Silverfleet Capital also maintains an investment team focused on smaller middle-market companies that has already made two successful investments: STAXS Contamination Control Experts, a leading supplier of cleanroom supplies in the Benelux (closed in January 2019), and Microgen Financial Systems, a leading provider of trust and fund administration software for the trust and corporate services industry.