Banks and lending institutions across the south of England still have an appetite for small and medium-sized leveraged buy-outs, according to a survey published by Castle Corporate Finance, a specialist strategy advisory team for privately owned companies and their advisers.

The report, based on 16 banks and lending institutions, revealed that 36 per cent of respondents were interested in deal values ranging from £1 million to £20 million. A similar 37 per cent group confirmed that they were only interested in deal values above £5 million, with just 10 per cent showing interest in larger deals of more than £10 million.

Michael Norrie, Castle Corporate Finance director, said: “Bank valuations are substantially reduced on 2007 levels and the proportion of such reduced deal value that the banks will support has fallen too. Vendors in leveraged deals will receive a much lower cash consideration on completion.”

The survey, which is Castle Corporate’s first, also revealed that participants were not as keen to finance management buy-ins, with 27 per cent stating that they would not look at an MBI.

Detailed feedback on the lack of interest was not provided, however, determining factors may be the high inherent risk of a MBI as incoming management will not be as familiar with a business as its existing management team. MBIs are also traditionally more difficult to finance than MBOs because of the higher risk and transaction costs can also be higher because greater levels of due diligence may be required.

Norrie added: “As feared, a majority of lenders have confirmed that lending covenants and terms will be more demanding. MBIs and deals in the retail, construction and property sectors have little chance of finding leveraged support.”