Management buy-out activity for the third quarter is down 16 per cent compared with last year and is expected to fall further in the fourth, as the difference between vendors' and investors' price expectations widen.
The Centre for Management Buy-out Research has found that 255 transactions were completed between July and September with a gross value of #1.18bn, compared with 302 such deals for 1997.
Christopher Hale, head of the private equity department at City practice Travers Smith Braithwaite, described the situation as “the first period of turbulence in the private equity market for three to four years”.
The drop in activity is seen by Hale as a short-term adjustment in price expectations between vendors and investors.
“The trouble is that vendors who could get #1 in August haven't realised that they can only get 70p now,” said Hale.
Private equity houses still hold significant sums of capital to invest in MBOs and Hale believes that this will be realised once price expectations have reached an equilibrium.
In the meantime, private equity houses have been busy investing in undervalued listed companies and taking them private.
The most recent company to be targeted is brewery Usher.