Half of all management buy-outs are distressed deals

According to latest figures released by KPMG this week, around half of MBO deals completed over the last three months have involved distressed companies.

The other interesting fact born out by the data is that average deal size has shrunk dramatically from the same period last year. The average MBO deal size over the past quarter was valued at £43 million, compared with £150 million in the third quarter of 2008.

However, senior KPMG partner, Michael McDonagh, said that he was surprised at the low number of distressed deals given how long the recession has had a grip on the UK economy. “The research shows that we are still some way off seeing the private equity market throw its weight behind distressed opportunities."

KPMG’s view for the next year? McDonagh is betting there will be an increase in deals starting this final quarter of 2009, followed by a further increase in activity early next year.

And what kinds of companies are going to attract the most attention?
According to McDonagh, “What some might describe as dull but dependable businesses with good earnings visibility, particularly with contracted revenues, are far more likely to attract debt support and therefore private equity bidders.”

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