Buy and build soared to record highs in the year that left other M&A strategies at a low ebb. According to a report, 2007 saw private equity-backed companies complete 385 builds, 92 of which were sealed in the first year post-buy.

The ten-year study on the buy and build strategies of private equity-owned portfolio companies in Europe, released by PPM Capital in conjunction with Mergermarket, revealed that portfolio companies bought in 2006 made 127 follow-on acquisitions over the research period.

Last year, two large-scale examples came from Blackstone Private Equity portfolio companies Tragus and Merlin Entertainments.

In February, Tragus enlarged its restaurant offering with the purchase of Ma Potter’s for £14.2 million followed by the £140 million acquisition of Italian chain Strada in May.

May also saw UK-headquartered Merlin Entertainments buy Madame Tussauds for $1.9 billion (£959 million), making it Europe’s leading attractions operator and the world’s second-largest theme park group behind Disney.

Commenting on the peak in volume and speed of follow-on investments by private equity-backed portfolio companies, managing partner of PPM in London Neil MacDougall says: “Undoubtedly some of this reflects the strong M&A market in the first half of last year, but given the current debt market conditions, we predict that 2008 will be the year of focus on portfolio companies generally.

“The slowdown in M&A will focus private equity houses on value creation within their existing portfolio companies… We would expect to see greater effort put into buy and build strategies in 2008. Lengthening exit horizons may also cause portfolio companies to activate or re-activate such a strategy.”

International M&A was forecast to reassert itself as the M&A market recovers, while the size of builds was expected to drop as smaller transactions were perceived to be less risky and more easily financed.