Takeover boom in the pipeline

VENTURE capitalists are confident of a recovery in the business climate for the first time this year, suggesting investors should be braced for a flurry of takeover activity, research revealed today.

The study from the British Venture Capital Association showed a dramatic increase in optimism about the general business conditions for private equity companies to back buyouts or investments.

A total of 90% of venture capitalists predicted their investment activity would increase or remain stable over the next three months. Of those, 50% were confident of an improvement in market conditions, compared with 37% in June and just 14% in March.

The optimism comes amid tentative signs of a pick-up in the number of venture capital-backed management buyouts. Only this week it emerged that Thorntons, the confectioner, is being viewed by private equity firms, while yesterday a British-led private equity consortium won the bidding battle for satellite group Inmarsat.

Others on the takeover list range from discount stores group TJ Hughes to sheet music publisher Boosey & Hawkes. Meanwhile, Permira, currently bidding for Debenhams and linked to possible buyouts of EMI and New Look, this month raised Europe's biggest ever private equity fund, at £3.6bn.

The BVCA survey found that, in the past three months, 44% had found the business climate favourable for investment - another improvement on the previous quarter's survey.

BVCA chief executive John Mackie described the survey as very encouraging, although others warned that it was still too early to call a recovery in the market.

Recent studies from the influential Centre for Management Buyout Research predicted the current year would bring the lowest value of deals since 1997. In the nine months to the end of September, only £9.2bn of buyouts had been completed, leading to predictions that deal value for the year would reach about £12bn. That will be lower than the poor £15.3bn of 2002 and a mere shadow of the £24bn invested in 2000.

Part of the problem has been the uncertainty surrounding the likelihood of venture capitalists being able to sell on their investee companies. With potential trade buyers emasculated by deflated share prices, eight out of the 15 £50m-plus ?exits‘ so far this year went to other private equity firms.