Prices hold up for pre-CGT sales

24/04/08 15:47

Companies that hurried to sell before the capital gains tax deadline did not have to compromise on price, research by accountancy and advisory firm BDO Stoy Hayward has shown.

Analysts had predicted a surge in deals before April 5 as business owners hurried to beat the deadline for the abolition of capital gains tax taper relief and the 10% rate, but there were fears that buyers' offers would be lowered given the short notice period and turbulent market conditions.

BDO Stoy Hayward reported 791 deals closing in the first three months of 2008, with multiples paid by private equity investors falling in line with those paid by trade buyers, meaning the premiums being paid by private equity buyers are becoming a thing of the past.

The Private Equity Price Index (PEPI), which showed price/earning multiples on sales to private equity buyers fell back to 12.9 times in Q1 2008, falling 16% from the last quarter of 2007. This followed private equity houses struggling to raise bank debt for new investments.

Meanwhile the latest Private Company Price Index (PCPI), which tracked comparable multiples paid by trade buyers for private companies in the first quarter of 2008, held steady showing a marginal increase over the previous quarter, rising from 12.9 times to 13.2 times.

Jon Breach, M&A partner at BDO Stoy Hayward LLP commented: “A fall in deal multiples, not just in private equity, but across the board, was widely anticipated given the current credit crisis. However, our figures show that for those deals that completed in advance of the CGT deadline, vendors managed to hold out for full prices from trade buyers. Given the scarcity of bank debt to fund deals, private equity buyers lost market share as they were no longer able to pay a premium in order to trump trade buyers.

“A number of deals did not complete before the deadline as vendors stood firm in the face of buyers seeking to reduce prices. Given the continuing decline in public company ratings and with no sign of the credit market easing, we may now see a period where both buyers and vendors take stock and await some clarity on market conditions.”