Management buy-out volumes remained relatively unchanged in the first half of 2007, but industry players are bracing themselves for an impending “credit crunch” in MBO financing.

While buy-out levels below and above £101.5 million [euro150 million] in value remained around the same level as the first half of 2006, those in the industry are increasingly pessimistic, believing that gearing will fall and loan default rates will increase in the next 12 months.

But this pessimism is yet to be reflected in deal figures. Sub £101.5 million deals increased marginally in H1, with 75 deals completing, up 10 year on year. The aggregate value of these deals came in at £2.2 billion, compared to £1.9 billion the previous year, according to corporate finance adviser Corbett Keeling’s unquote” UK Watch.

Meanwhile, 27 deals above £101.5 million completed in H1 2007, equal the number completed in 2006.

But while the number of larger deals remained static, deals increased in terms of value. More than £1 billion extra was spent on buy-outs in H1, with deals worth £11.4 billion completed, compared to £10.2 billion in 2006. This was driven by private equity players, which are prepared to pay more than the public markets, Corbett Keeling reported.

While deal volumes are expected to remain at about 2006 levels for the remainder of the year, respondents are expecting gearing levels in deals – which was relatively unchanged in H1 – to fall in the coming months.

Also, more than 70% of respondents are predicting that loan debt default rates among private equity-backed businesses will rise in the next year.

“The most striking feature of this quarter’s UK Watch statistics is that in almost all respects the historic figures for MBOs for the first half of 2007 are at similar levels to the same period in 2006,” said Simon Keeling, joint chairman of Corbett Keeling, said. “Notwithstanding this, there is widespread expectation of a credit crunch. Everyone in the industry will be watching carefully through the summer to see if we get a soft landing or hit the wall.”