Welcome to Transact – an overview of the market, deals and opinion from the Acquisition Finance team, the BVCA and our Chief Economist.

2011 proved to be another challenging year for private equity. While the mid-market remained relatively resilient in the face of market pressures, after the first half of the year deals became increasingly difficult to transact.

Our relationship-led approach, commitment to through-the-cycle support and our ability to work alongside other teams in the wider Lloyds Banking Group to deliver innovative, sustainable debt structures, saw us commit over £3 billion to more than 50 deals in the mid-market and large buyout sectors, despite economic hurdles.

We also enjoyed further growth on the continent, supporting a number of key transactions, including Bain Capital’s acquisition of IMCD and CVC Capital Partners’ buyout of Raet, and appointing Hélène Briand and Eléonore Dedeyan to our Paris office.

Our position amongst the industry’s lenders of choice was reaffirmed in November, when we secured the Leveraged Finance House of the Year award at the Private Equity News Excellence in Advisory Services Awards, and is evidenced in the high number of our portfolio businesses which regularly feature in the annual Buyout Track 100 league table, to be published in February.

While 2012 will present a number of significant challenges for the industry, it will also create opportunities for private equity to drive value creation through well structured and priced transactions, involving high growth businesses which have adjusted to the current unpredictable trading conditions.

In order to capitalise on these opportunities, confidence, professionalism and strong relationships between sponsors and debt providers will be of paramount importance. Our commitment to execution excellence, and developing new and existing relationships to drive private equity deal flow, is unwavering.

Access to finance is one of the biggest priorities for UK businesses. Mark Florman, Chief Executive of the British Private Equity and Venture Capital Association (BVCA ), explores the opportunities for growth funding.

With the economy still struggling to get out of the worst downturn since the 1930s and with uncertainty over the future of the Greek and Italian economies, and even the euro itself, it is more imperative than ever that companies are able to thrive and prosper to drive the country forward.

Private equity’s contribution in this area has been significant. In 2010, the industry invested almost £21 billion globally, up from £12.6 billion in 2009, backing almost 1,000 companies. Despite the tough fiscal conditions, private equity has demonstrated empirically its ability not just to cope but excel during even the most severe economic shocks.

According to academic research published earlier this year, private equity-backed companies have outperformed both listed and non-listed businesses in recent years, and the outperformance was even more pronounced during the recession.

There is still more work to be done.

For private equity and venture capital to achieve more and deliver significant economic growth, we must broaden the debate on access to capital. Without the appropriate funding, Britain’s businesses will flounder. Both the private equity and banking industries need to communicate to a wider group of shareholders, explaining what we do and how we do it. We need to promote equity finance alongside conventional lending.

Leveraged debt and its providers’ strong working relationships with sponsors will be at the heart of private equity’s impact on economic growth in 2012. While deal structures have unquestionably altered as a result of the downturn, financiers have continued to extend competitive terms to fund deals for businesses with good growth prospects, long order books, and high levels of repeat income and conversion of EBITDA to cash.

The governance structure of private equity – with its small number of shareholders and short reporting lines compared to listed companies – has been a key factor in the industry’s ability to cope with the changing market conditions. It is an active ownership model where both investors and companies’ management teams share the same goal – to create value in businesses. Lenders, like Lloyds Bank, have also refined their approach accordingly.

We need to better communicate the advantages and goals of private equity, and encourage the whole marketplace of finance to work together to drive fit for purpose investment in UK businesses. This is a job for politicians and the whole of the financial services industry. Growth funding, supported by sensible borrowing, is available for UK firms. In 2012, we must drive home this message.

We remain committed to providing ongoing support throughout our portfolio companies’ growth cycles, despite challenging fiscal conditions.

In a volatile economic environment, it is vital that companies and their investors have certainty of funding and productive interaction with their lenders.

Long-term relationships and common understanding of business goals can be the difference between a sustainable firm which contributes to its local economy and delivers notable value creation to shareholders, and one which fails to meet its growth potential.

During 2011, we further invested in managing our client portfolio, and our continued commitment to through-the-cycle support is evidenced by the notable growth realised by firms in our portfolio.

The expansion of Newcastle-based Aesica, a leading supplier of active pharmaceutical ingredients and formulated products, stands testament to the value of consistent, long-term corporate banking support and strategic acquisitions.

In September 2011, we provided senior debt and a revolving credit facility for Silverfleet’s investment in the company, which saw Lloyds Development Capital (LDC) successfully exit in a transaction that will enable management to realise the next stage of its expansion strategy.

The business has developed its manufacturing functions, new service lines and products, and increased its presence in international markets with the backing of Lloyds Bank’s Acquisition Finance team since 2004.

We provided mezzanine debt to secure LDC’s buyout of a former BASF site to create the firm and, later, supplied a funding package to support the bolt-on of research company R5 Pharmaceuticals, enabling Aesica to expand its early stage research and development function.

By providing finance to support the acquisitions of three manufacturing sites in Germany and Italy in March 2011, we also helped to facilitate the firm’s rapid European expansion and its ability to service key customers on the continent.

We have held an exemplary relationship with the company since its inception and now provide the firm’s corporate banking facilities, which include forex trades, bonding and interest rate hedging.

In January 2011, we jointly underwrote senior debt, acquisition and revolving credit facilities to support Bain Capital’s buyout of IMCD, a leading distributor of speciality chemicals and food ingredients, and a firm with which we have enjoyed a longstanding relationship.

 In financing the acquisition, we demonstrated our cross-border collaborative approach by combining the experience and relationships of our Amsterdam and London-based origination teams, to deliver a highly competitive debt package.

We originally co-arranged a debt facility for the AlpInvest-backed primary buyout of the company in 2001 and went on to support AAC Capital Partners’ secondary buyout in 2005 with a leveraged package, indicating our continued confidence in the management team’s ambitious global expansion strategy.

Our ongoing support and that of our colleagues in the wider Lloyds Banking Group, which provides hedging and clearing facilities to IMCD, has helped the company to achieve widespread overseas growth by deepening its network in Europe, Africa and Asia-Pacific through a selective buy-and-build strategy.