2010: The year of the equity cheque

Private equity firms in the UK put more equity into their buyouts this year than ever before, according to data released Tuesday, as debt for acquisitions remained difficult to raise.

The average equity contribution to a UK buyout in 2010 was 68.1 percent of the deal value, according to the Centre for Management Buyout Research at Nottingham University. This is higher than in 2009, when the equivalent figure was 61.6 percent, and far higher than the data recorded at the height of the credit boom between 2005 and 2007, when the average equity cheque ranged from 35 to 40 percent.

The average numbers may be skewed, however, by the high number of all-equity deals, said Sachin Date at Ernst and Young, the co-sponsors of the research.

“At the big end we are seeing more like 50-50 debt to equity,” said Date. “The CMBOR stats reflect the fact that a lot of deals – at the time of acquisition – were done using all equity.”

Reports of current investments being financed at a 50 percent loan to value include Apax Partners’ widely mooted bid of €8.5 billion bid for Danish support services business ISS, the capital for which is expected to include a €4 billion debt package.

“Debt, while it is available, is not always easy to come by,” said William Charnley, a partner with law firm Mayer Brown. “The firms will write bigger equity cheques – often underwriting the deal entirely with equity – until they can refinance it.”

“With what has been a good market for high yield bonds, it has been possible for firms to bridge the deal with equity and put the high yield in place later,” added Charnley.