The West Midlands private equity-backed buy-out market rose above the £1bn threshold for the first time in three years in 2011 - according to the latest data published by the Centre for Management Buy-Out Research (CMBOR), sponsored by Equistone Partners Europe (previously Barclays Private Equity) and Ernst & Young.

The value of private equity backed buy-outs in the West Midlands in 2011 reached £1.1bn in 2011, compared to £801.3m in 2010 and £88.3m in 2009. The last time the market exceeded the £1bn threshold was in 2007 (£1.939bn).

The number of deals in the region also rose significantly - to 20 in 2011 compared with 11 in 2010 - again the highest for four years (2007: 28).

The West Midlands figures were boosted by the sale of Phones4u in April 2011, valued at £677m (the fourth largest deal across the UK) and the sale of Pattonair in July valued at £146m.

However, there was much less good news in the East Midlands where just three deals were recorded - the lowest for many years - with a total value of £82.2m. (2010: 13 deals with a value of £878.7m).

Nationally, the value of all UK private equity buy-outs dropped by over a third (36%) to £12.1bn in 2011 compared to a total value of £18.8 bn in 2010, due predominantly to a sharp decline in the number of large deals. With the exception of 2009, when only £4.8bn worth of buy-outs took place in the immediate aftermath of "the crash", the 2011 national total value is the lowest since 1997 (£9.6bn).

Overall, the number of deals completed in 2011 decreased only slightly from 183 in 2010 to 176 in 2011, representing a lower average deal value of £68.7m (2010: £102.6m). Deal making in the lower mid-market bolstered the market. Buy-outs in the £10m to £100m range numbered 81 with a total value of £2.7bn in 2011, compared to 69 deals with a total value of £2.3bn the previous year.

The level of private equity buy-outs was healthy compared to an overall sluggish M & A market - private equity accounted for nearly two thirds (64%) of the total value of overall M & A activity (source: ONS) in the first three quarters of this year*.

This is a similar proportion to the peak of the private equity buy-out market in 2007 when private equity comprised 62% of overall M & A activity.

Phil Griesbach, director at Equistone Partners Europe in Birmingham, said that the West Midlands had performed particularly well in an environment where there had been a severe weakening of confidence in the markets and Euro Zone uncertainties.

"Despite being a very unstable year for the economy, the private equity buy-out market in the UK remained fairly resilient in 2011. Positively, at a high level, the West Midlands appears to have done well, although you need to look behind the statistics as often one or two large deals can skew the picture.  That said, there were some signs of encouragement with a good number of lower and mid-market transactions completed in the region during 2011, although deal activity in the East Midlands has been disappointing.

"Whilst we do not expect a huge boost in activity in early 2012, we are encouraged by the strength of UK manufacturing, the prospect of falling inflation and the international dynamics of many UK companies who continue to expand. We are therefore optimistic that 2012 will prove equally resilient for private equity with a cautious economic recovery during the second half.

"Debt availability is slowly returning and private equity firms are showing they are open for business as usual with a healthy level of exit activity, particularly to international trade buyers. Nonetheless, the market does remain very competitive and private equity firms need to be thorough and selective," said Mr Griesbach.

Nick Gillott, Director, M & A Lead Advisory at Ernst & Young in Birmingham, said: "It's great to see the West Midlands performing relatively strongly when compared to the national picture in what continues to be a very volatile environment.

"The pipeline of deals as we enter 2012 is encouraging, and with capital available to drive continued activity in the secondary buy-out market, we are optimistic that 2012 will see another robust performance in the context of a slower broader market recovery."

The exit market in the UK has continued to make a strong recovery although deal value is down slightly on the previous year. The number of exit transactions increased to 151 in 2011 with a combined value of £8.5bn (2010: 142 transactions; combined value of £11.5bn).

Private equity backed listings on the public markets were non-existent in 2011, with only two taking place in the second quarter of 2010.

Other highlights include:

• Secondary transactions continue to dominate the UK buyout market with 57 such deals recorded in 2011 compared to 49 in 2010. The total value of secondary buyouts was £5.4bn, representing nearly half (45%) of the total market, a similar proportion to 2010 when a total of £8.6bn was recorded (46% of the total value).  

• More debt is being used in UK buyouts with a typical deal structure for deals over £50m containing 42% debt compared to 36% in 2010 and 37% in 2009. 

• More private equity investors are buying assets from overseas owners. In 2011, the value of private equity-backed buyouts from foreign companies in the UK totalled £1bn, nearly double the total value of foreign parent deals in 2010 (£520m). 

• The upper mid-market (£100m to £500m range) declined by 40%, with £4.5bn total value in 2011 compared to £7.4bn in 2010. This is in contrast with the lower mid-market (£10m-£100m) which showed a 17% increase from £2.3bn in 2010 to £2.7bn in 2011. 

• The number of large buyouts (over £500m) more than doubled in 2010, with seven deals completed at a total value of £8.9bn compared to two deals in 2009 totalling £1.8bn. In 2011, there have been six deals in this value bracket totalling £4.6bn, including the buyout of RAC for £1bn in September 2011 and the buyout of the Priory Group for £925m in March. 

• The business and support services sector was the largest sector for buyouts with a combined value of £2.5bn and representing 20% of the total (£12.1bn). Business and support services also saw a high volume of deal flow in 2011 with 37 deals reported, including the £586m sale of Environmental Resources Management (ERM) by Bridgepoint to Charterhouse Capital Partners.  

• Manufacturing had a combined value of only £950m in 2011 compared to just over £5bn recorded in 2010 which was predominantly due to the £2.9bn buyout of Tomkins in September 2010. However, the manufacturing sector saw the highest volume of deal flow with 39 transactions completed, accounting for almost a quarter of all deals.    

• Following an active year for buyouts in the retail sector in 2010 with a total value of £2.8bn, 2011 was more subdued with only £1.2bn recorded. This includes the £677m buyout of Phones4U in April, indicating a marked slowdown for the rest of the sector.

• Despite a drop in the volume of transactions in the sector in the UK (14 deals in 2010 to 9 deals in 2011), the value of healthcare deals in 2011 reached a total of £1.8bn compared to £1.6bn in 2010 and just £450m in 2009. However, the high value of healthcare sector transactions in 2011 was skewed by the sale of Priory Group for £925m in March.

*Office of National Statistics data is available up to Q3 only. All other data cited for 2011 refers to the full year.