21 Aug 2018

Bilateral deals increase as PE firms avoid auctions

Bilateral deals have sharply increased in 2017-18 according to data from Investec, as private equity firms increasingly seek out direct sales in an effort to deploy dry powder without the competition of an auction process.

An analysis of 587 deals from 2016-17 and 2017-18 shows that the number of bilateral deals increased by 71% last year relative to the previous year. The value of these deals increased from £1.06bn in 2016-17 to £7.98bn in 2017-18, with bilateral deals accounting for 19% of all deals by value in the last financial year.

 Estimated value of bilateral dealsEstimated value of non-bilateral deals
£7,983m (19%)£34,978m (81%)
£1,063m (4%)£28,608m (96%)

Christian Hess, Head of Financial Sponsor Transaction Group at Investec, commented:


“The significant rise in bilateral deals tells you something interesting about the current market: private equity firms are really struggling to find value in auctions. There’s a huge amount of capital chasing a small number of deals, and as you’d expect, auctions are competitive to the point where private equity investors are deciding that if they want to uncover value, they need to look where no-one else is looking – and that means bilateral deals.”


Several high-profile deals have underlined this trend: in June 2017, CVC Capital Partners paid a reported £700m for QA, pre-empting an auction which had been planned by its owners for the second half of the year (1). The number of “express auctions” has also increased meaningfully, especially for secondary LBOs. Quick processes have led to concerns that buyers are rushing to deploy dry powder without taking the time for thorough due diligence.


Hess continued:


“The spectrum of various M&A pre-emption techniques is being deployed much more broadly today. Bilateral deals are tough to pull off, but of course, when successful, there can be a win-win for both buyer and seller.”


The research showed that much of the increase was driven by public to private transactions, which made up £5.27bn of tracked deals in the past 12 months.


Investec analysed all portfolio company acquisitions and disposals made by PE investors of UK-headquartered portfolio companies in April 2016-Mar 2017 and April 2017-Mar 2018.

Deal volumes include all UK PE buyouts and portfolio company exits.

(1)  Financial Times: CVC takes controlling stake in QA for £700m, 19 June 2017