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Buy & build activity: highest in 20 years in H1 2019

4. Decem­ber 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.

Geogra­phi­cal­Trends
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 metho­do­logy
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.

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