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UK Mid-market private equity deal analysis 2019

UK Mid-market private equity deal analysis 2019

UK Mid-market private equity deal analysis 2019

UK Private Equity deal volume has fallen to the lowest level in five years, as heightened economic and geopolitical uncertainty gripped the market. There were 978 PE deals in the UK during 2019. All UK PE deal volumes were down by 19.0% and deal values fell by 18.9%.

Key findings – 2019 Mid-market PE activity in the UK

  • All UK PE Deal volumes and values – volumes down by 19.0% & values down by 18.9%. Private equity investment in the UK has fallen to its lowest level in more than five years, as heightened economic and geopolitical uncertainty gripped the market.  
  • Mid-market PE also saw a drop in volumes of 14.6%. Whilst overall PE volumes and value are down, mid-market PE values remained very resilient in 2019, with values up 4.3% to £39.9billion, the highest in five years. Multiples in the mid-market remained steady at 11.6x earnings in 2019, slightly down from 11.9x in 2018 but much stronger than the wider M&A market where multiples were 8.5x earnings in 2019, suggesting mid-market private equity funds are now confident to focus on larger deals. 
  • The rise of Public to Private transactions. While bolt-on transactions continue to play an important role in deal flow, accounting for 56% of all mid-market PE deals, 2019 was another strong year for public-to-private deals. There remains a number of ‘unloved’ – and often undervalued – mid-market companies on the public markets. As a result, there are a number of public companies with market values tracking behind those of their peers, with a share price which is occasionally unresponsive to favourable news or performance. On the flip side, there are PE funds holding a significant amount of dry powder, and who continue to face stiff competition for privately-owned assets. This means many funds are now looking more seriously at these ‘forgotten’ public companies as a platform or bolt-on acquisitions.
  • Mid-market exits on the wane - Just as inward PE activity declined, PE exit volumes have also been steadily falling over the last few years, largely driven by persistent political and economic uncertainty. Indeed, there were only 138 mid-market PE exits in 2019, down by more than a third (34.3%) on the previous year. While any prolonged continuation of this trend may start to prompt cause for concern, it is anticipated that exits could bounce back in 2020, given the pent-up demand among investors to exit investments that they’ve held onto for longer than originally desired. 
  • Looking ahead to 2020. After a long period clouded by so much uncertainty, the December General Election at least provided the market with a degree of clarity, and the early signs are there that this may stimulate a resurgence of PE-related activity across the UK - at least in the short to medium term. Yet despite a burst of new year optimism, there is nevertheless a recognition that trading conditions remain fragile, and whilst we have now left the European Union, there remains a lack of clarity around our future trading relationships once the Brexit transition period expires at the end of the year. In addition, we now have the uncertainty over the scale of the economic impact that will occur as a result of the spread of Covid-19 which is likely to have an adverse effect upon M&A activity over the coming months.

*Mid-market deals are defined as those with values between £10-£300 million.

We hope you find this report insightful. We are more than happy to discuss further the activity that we are seeing in the market. If you are interested please do not hesitate to get in touch.

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