Credit crunch impacting on acquisitions, say Ion Equity

Banks and other lenders are reducing the amount of money they will lend to fund private equity and leveraged acquisitions by as much as 20%, it has been revealed today.

This has put prospective trade buyers in a stronger position when it comes to making acquisitions, according to Ion equity director Joe Devine.

Writing in Ion’s M&A Tracker Survey for the fourth quarter of 2007, Mr Devine says that private equity and other leveraged buyers accounted for some 40% of the €22bn spent on acquisitions in 2007.

“These buyers rely on high levels of bank debt to fund their acquisitions,” he said. “The dislocation in credit markets experienced since September 2007 is having a serious effect on these types of transactions.

“Banks are reducing the level of debt they are prepared to commit to buyouts by as much as 20%.

“This places higher equity demands on leveraged buyers and puts trade buyers in a stronger position. Accordingly we expect a decline in deal volumes in 2008 as credit markets are unlikely to fully recover until well into the year.”

The M&A Tracker survey for the fourth quarter of 2007 shows an increase in the number of deals and their value.

The number of deals increased from 77 to 83 while the value of those deals increased from €8.6bn to €9.5bn.

The fourth quarter figures were distorted to a degree by the €5.7bn acquisition of the IFSC-based bank Depfa by Hypo Real Estate, but the fourth quarter 2006 figures were also distorted by one big acquisition – the €4bn acquisition of Houghton Mifflin by Riverdeep.

The finance sector – boosted by the Hypo/Depfa deal – accounted for more than 60% of deal value in the fourth quarter while building/construction/property accounted for more than 11% of the value of deals.

This sector, however, accounted for more than 51% of the number of individual deals in the period.

The leisure/travel sector accounted for more than 7 per cent of deal values in the fourth quarter mainly due to two big hotel acquisitions by Moran Hotels and Prem Group.

For the full year, the value of deals increased more than 44% to €22.3bn, although the number of deals fell from 250 in 2006 to 240 in 2007.

Three large deals in 2007 contributed to the big increase in deal value – the €4bn Riverdeep/Houghton Mifflin deal, the €1.6bn Quinlan Private/Marriott Hotels deal and the €5.7bn Hypo Real Estate/Depfa deal.