Despite uncertainty caused by COVID-19, economic and geopolitical factors, new analysis from KPMG has confirmed that mid-market private equity investment in the UK in 2021 soared to the highest levels ever recorded. Both volumes and values saw a boost, as a total of 803 deals, worth £46.8 billion were completed in 2021 - an increase of 40 percent and 36 percent, respectively.

Key findings – 2021 Mid-market PE activity in the UK

Our latest study of UK transactions involving mid-market private equity investors also showed that while disruptions caused by the pandemic made 2020 an atypical year for dealmakers, the levels of activity seen in 2021 still surpassed pre-pandemic levels, with deal volumes up 20 percent and deal values up 15 percent when compared to 2019.

The UK’s private equity market overall also thrived with a total of 1,545 deals worth £159.2 billion completed in 2021, up from 1,117 in 2020 and 1,246 in 2019. While performance was strong across the board, it’s evident that some sectors were more resilient than others, such as technology, media and telco (TMT), tech-based business services, consumer goods and retail.

Multiples hold steady

In line with the increase in values, KPMG’s research found that deal multiples rose across the UK private equity market as a whole, from 8.7x earnings in 2020 to 9.6x in 2021, with multiples in the mid-market remaining fairly steady at 10.4x in 2021, versus 10.7x earnings in 2020.

Another standout highlight in the data shows that IPOs are back in the game, and not only in the UK but across the globe. Over 120 companies listed in the UK, raising £16.8 billion, while the US saw a record number completed and the Eurozone also recorded the highest level of IPOs for several years.

Mid-market exits cool, but values remain hot

The number of private equity exits fell from 178 in 2020 to 162 in 2021, although this still surpassed 2019 levels of exit activity. Deal values, however, increased by 13 percent, from £13.6 billion to £15.4 billion.

Investment in TMT and Business Services businesses booms

Although deal volumes rose across all sectors, Business Services was the standout performer, with activity up from 215 deals in 2020 to 312 in 2021, and values rose by over 50 percent to £15.5 billion, up from 2020’s £10 billion and £14 billion in 2019. The allure of TMT businesses also held strong as the effect of remote and hybrid working buoyed investment in the sector, with 2021 deals up by 55 percent. In line with heightened activity in online retail and direct-to-consumer sales, Consumer Goods and Retail deal activity also saw an increase.

Will 2022 be another exceptional year for M&A?

After two years of being clouded by much uncertainty, 2022 looks set to be a clearer year of trading, as many of the challenges that have impacted private equity, like Brexit and COVID-19, are lessening. Investor appetite is strong and PE funds remain eager to deploy their ample dry powder, so healthy levels of activity will continue.

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