UK Buyout Activity Hits 5 Year Record High
Investor appetite for UK based SMEs is at its highest level for five years according to research from Lyceum Capital and Cass Business School. Analysing private equity investments in 2015 with an enterprise value between £10m and £100m, the Lyceum Capital and Cass Business School UK Growth Buyout Dashboard reveals that the volume of transactions increased by 12% over the year, with 87 investments totalling £3.43bn (2014: 78 investments totalling £3.38bn).
Total deal volumes remain 30%-40% below the highs seen before the financial crisis, but the recent increase appetite for deals is expected to continue in 2016 with investors focussing on companies’ earnings quality and growth potential.
The majority of investment activity took place in the second half of the year, as the uncertainty leading up to the General Election subsided. The value of acquisitions in the £25-75m range grew 52% to £2bn year-on-year, an indication of improved investor confidence in established businesses that want to accelerate growth.
The number of investments in the business services and industrial sectors increased 84%, and 66%, respectively year on year, underlining the UKs longstanding strength in these sectors. Meanwhile, investment in the healthcare sector contracted by 33% in 2015, (from 6 deals in 2014 to 4 in 2015). This is a clear reflection of the concern businesses and investors alike have about reduced Government spending and the significant impact the National Living Wage will have on costs from April.
Despite the value of private equity acquisitions in retail and leisure businesses contracting by 33% to £866m, the figure is high compared to other sectors. While UK consumer spending is considered to be relatively robust, investors in the sector are likely to continue to be highly selective through 2016.
Commenting on the findings, Andrew Aylwin, Partner at Lyceum Capital said: “It’s a seller’s market at the moment with private firms looking to deploy some of the largest cash piles in years.
“In a global economic market plagued with uncertainties ranging from falling commodity prices to volatility in the Far East, it is encouraging to see that the outlook for entrepreneurs and medium sized companies has never looked stronger. We expect these businesses to continue to attract increased amounts of investment and grow into industry champions over the next 12 months.”
Scott Moeller, director of the M&A Research Centre at Cass Business School, said:
“This is a strong result for a market that many at the start of 2015 were predicting to be moribund or even dead. Most encouraging was the absolute number of deals especially in the last half of 2015, which bodes well for the coming year — despite the potential of a faltering global economy adversely affecting the UK and the overhang of Brexit.”