Resilient 2012 creates platform for lower mid-market growth in 2013

The lower mid-market underpinned deal flow in the UK’s wider private equity arena during 2012, according to the findings of Lyceum Capital and Cass Business School’s UK Growth Buyout Dashboard.

The analysis of UK-headquartered private equity control deals in the £10m to £100m enterprise value range recorded a total of 79 transactions, which accounted for 45 per cent of all UK buyouts completed last year (190*).

The lower mid-market also continued its long-term recovery and demonstrated resilience against Eurozone uncertainty, disappointing UK macro-economic performance and the restricted availability of bank financing. Although deal volume fell by 12 per cent to 79 in 2012, the latest results compare favourably to the 67 deals with enterprise values between £10m and £100m recorded in 2010 and the 34 which completed during 2009.

The first six months of 2012 were particularly buoyant, recording total volume consistent with the 45 deals completed in H1 2011. However, the second half of last year saw deal flow slow, with 33 buyouts transacted compared to 45 during the corresponding period in 2011.

Andrew Aylwin, Partner at Lyceum Capital, believes 2012 represented a good year for the lower mid-market and that the segment’s importance to the wider UK deals market should not be underestimated. He said: “The lower mid-market performed robustly during 2012 given the challenging macro-economic conditions faced more generally. The number of deals completed underlines the continuing demand for growth investment and the importance of private equity in providing it at a time when other capital sources remain particularly weak.”

Aylwin attributes the segment’s long-term resilience to a range of factors which make it particularly attractive to private equity in the current low growth environment. He continued: “The success of the lower mid-market is not about financial engineering. Its foundations are firmly built on supporting and investing for growth in UK industries, be that for business development, expansion capital or buy-and-build potential. These collective attributes are unique to the lower mid-market and point to the £10m to £100m range’s ongoing recovery.”

This recovery will continue in 2013, according to Aylwin, as market conditions favour lower mid-market transactions over larger deals. He commented: “This year will again see the lower mid-market act as the backbone of UK deal flow. However, the level of investment firms’ available committed capital looks likely to become an increasingly important factor, with management teams at the strongest company targets ever more carefully diligencing potential suitors.”

Scott Moeller, Professor in the Practice of Finance at Cass Business School, shares Aylwin’s positive outlook for the lower mid-market, believing that deals in the TMT and support services industries will continue to see high volumes this year: “The £10m to £100m buyout bracket in the UK held up well in 2012 as a whole and especially in light of the context of the challenging European private equity market. For the private equity industry and the companies it supports, this is an encouraging base from which to start the new year and there is an expectation that the growing strength in the UK of the overall M&A market will be reflected in this £10m to £100m buyout range in 2013.

“The high number of retail and consumer deals completed last year reflects appetite from turnaround specialists to acquire distressed assets in the sector, which has been hit hard by falling consumer confidence. High volumes in TMT and business services are likely to continue into 2013 as these industries respond to UK plc’s appetite to drive efficiencies. Although these are sectors where the fundamentals will likely continue to be strong into 2013, there is also a strong base from 2012 for additional industry sectors to do well.”

Deal values

Transactions in the £10m to £50m value range dominated Q4 2012, making up 88 per cent of all buyouts in the lower mid-market. There were just two deals valued between £51m and £100m. This segmentation towards the lower range illustrates the wide pool of high quality SMEs in the UK, and private equity firms’ appetite to invest in these businesses to drive transformational change and value generation.

66 deals completed within the £10m to £50m value bracket during the whole of 2012, compared to just 13 in the £51m to £100m space. These contributed to a stable average deal value for 2012 of approximately £33m, in contrast with £39m in 2011 and £33m in 2010.

Type of investments

The data confirms that management buyouts remain a key source of deal flow in the value range. 12 MBOs completed during the final quarter of 2012 representing almost 71 per cent of transactions in the lower mid-market.

There were 55 MBOs with enterprise values between £10m and £100m in 2012, compared to 57 in 2011. Despite there being eight public-to-private (P2P) transactions in the UK lower mid-market in 2011, there were none during 2012.


There were eight lower mid-market realisations in Q4 2012 — the same as the previous quarter — split evenly between secondary buyouts and trade exits.

The split suggests that while strategic trade buyers still have available cash to invest, mid-market funds are ready to deploy capital to invest in firms that have previously grown under private equity ownership.

There was a total of 37 exits in 2011 compared to 48 in 2011, 42 in 2010 and 17 in 2009.

Investments by industry

Q4 2012 saw a resurgence in retail and consumer sector deals with six completing during the period compared to just two in Q3. Technology, Media and Telecoms (TMT) was the other attractive industry, with five transactions in the final three months of last year.

Retail and consumer was the most popular sector for lower mid-market private equity investment in 2012 with 22 deals, followed by support services (19) and TMT (18). There were more retail and consumer transactions last year than there were during 2011 (14), 2010 (10) and 2009 (seven).

*Total UK buyout volume figure for 2012 attributed to Dealogic