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Interview: Chance of a buy-out? Seize it!

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23rd Jun 2005
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AccountingWEB speaks to the outgoing head of Private Equity at PriceWaterhouseCoopers, Peter Jacobs, winner of the ICAEW Corporate Finance Faculty's recent Outstanding Achievement Award, about value, volume, contrariness, and how, if you get the chance to do an MBO, carpe diem

Peter Jacobs recently picked up a highly coveted accolade for his three decades at PricewaterhouseCoopers, the last two of which have been in corporate finance, for which he won an Outstanding Achievement Award from the ICAEW's Corporate Finance Faculty.

Having graduated from Leeds University in economics, Jacobs joined Coopers & Lybrand, staying with the firm through its various incarnations ever since.

En route, he has advised on over 70 completed acquisitions and disposals worth some £5bn, involving most of the UK's private equity houses. They range from the buy-out of Dewhurst, the butchers, to HMV Media and, most recently, the secondary buy-out of restaurant group Tragus Holdings.

Jacobs says that while aspects of the M&A market may have been in the doldrums until recently, private equity doesn't work that way: "Like all markets private equity is cyclical - but there's been a shift over last five years - fewer deals by number but higher values - driven partly by, one has to say, returns. If you look at the statistics, you see that the larger funds have been generating better returns."

"Clearly", he says, "that means that if M&A fees are a function of your value, and not volume, then M&A has remained comparatively good in the private equity market. Nonetheless, I think it's fair to say that in the mid-market area that we operate in, what we've seen amounts to a consolidation of advisers - albeit, like every consolidation, it's thrown up a plethora of new players in the form of boutiques."

There are currently some interesting market drivers, he says: "There is a lot of money around, which is looking for a decreasing number of deals. Coming into that market increasingly are hedge funds - there has also been a very strong debt market over the last 12 months, which has driven prices up - they're probably the major drivers."

A couple of things are making investors twitchy at the moment. "If you look at just the UK market, there's some nervousness about consumer spend... but no doubt that'll change pretty quickly."

One sector, he says, that has been "pretty active", at least until now, is retail consumer products. "Financial services also - and obviously the private equity houses have been focusing more on particular sectors than they had been."

But the houses vary - some are into healthcare, technology and, say, media. Others want to be all things to all people. But there's also some merit in being contrary. Retail, for example, was for some years a completely unloved sector. The first VCs that entered that market did exceptionally well."

Over time, he says, the contrary view often reaps benefits.

Jacobs has been described as "the man that opened up Europe for private equity". This, he contends, is somewhat of an overstatement, but can't deny having taken an interest in continental opportunities that competitors overlooked.

"The UK market is relatively mature - people like myself have been there, seen it and done it. Thus finding new angles and opportunities is more difficult. There are opportunities in Europe - but there are also risks." Some of the outfits that have taken those risks are among the most successful.

PwC is not the kind of outfit that is likely to give you a leg-up if you're an SME after a spare few hundred thousand to prime the pump. "Our core market is in the £25m-£300m transaction size bracket," he says.

At this point in the interview, the marketing manager butts in with some hard facts and figures: In 2004 PwC was ranked first out of the top ten mid-market deal advisers by number of deals, (45), and second by rank value, ($7,770.9 - a hair's breadth behind Rothschild.)

In the big league, ($50m - $1bn deals), total PwC deal value was $10.7 billion, third in the league tables, but higher than any other Big Four firm.

He says, "The issue is, for institutional investors, it has often proven difficult over the last 20 years to make money out of the smaller deal end of the market. And the cost is greater in effect -the cost of investing in say, a £5m deal compared to the cost of a £25m deal, is not one fifth! The people time and hence cost is just the same' you can see why for institutional investors it's uneconomic to play where the equity gap is - it might not be so for an 'angel.'"

Jacob's top tip for financial directors and management generally is: "If you have an opportunity to do an MBO - it's a lot of opportunity. It can be both financially rewarding, and mentally stimulating. The prospect of owning one's own business is of course a very attractive proposition. If you spot that opportunity, and you're someone that's bright and ambitious and likes a challenge, just go for it."

And, he says, "Get proper advice - getting it wrong can be expensive. It's important to get it right because there may not be a second chance."

He counsels: "Don't be frightened by it. [The MBO process] is a well-trodden path. Yes, there are risks attached to every corporate transaction as there are in life. The risk involved in a private equity transaction is that there's likely to be debt involved, and performance will be accordingly exposed by the leverage."

Jacobs is reticent to talk about past deals, saying, "the best deal is always the next one'it's the challenge you face that's exciting." (But he does remember the novelty of working on a deal that everyone was aware of - the Dewhurst buy-out.)

The reins have now been handed over to PwC's head of European private equity, Chris Hemmings. But Peter Jacobs says he's too much of a "deal junkie" to rest on his laurels. From July 1, he's cutting down to three days a week with PwC, using the rest of his time to take up some non-executive directorships and pursue new avenues. He insists that he'll be working just as hard under his new work regime.

He sounds like a man still on the lookout for more opportunities.

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