Private Equity Deal Flow in the UK – April 2015

by Ciantelle Lawrence

  • 22 Apr 2015
  • PE

Preqin’s Buyout Deals Analyst module shows that since 2006, the UK has seen a total of 3,053 private equity-backed buyout deals with an aggregate value of €226bn. The number of buyout deals has generally been on the rise since 2009, with 2014’s figure close to pre-crisis levels (371 private equity-backed buyouts deals were announced last year compared to 400 deals in 2007). However, the average investment size is still much lower, at €127mn in 2014, compared with the record €243mn in 2007.

With one of the most mature private equity landscapes in the region, plus expanding GDP and falling unemployment rates, the UK leads its European peers in terms of contribution to European deal activity: the UK alone represents approximately one-third of the number and total value of European private equity-backed buyout deals, at 31% and 32% respectively, for the period 2006 to present. 

Perhaps unsurprising given the UK’s demographics and nature of its sizeable service-based economy, consumer & retail and business services are two of the most prominent sectors with regard to the number and total value of deals that have taken place in the UK since 2006. Private equity-backed investments in consumer & retail have accounted for 20% of the number of deals and 22% of the aggregate capital invested via such deals in the UK since 2006. Business services contributed 19% of both the number and total value in the same period. Preqin data for the period 2015 YTD indicates that UK-focused fund managers maintain a preference for investments in business service companies: this sector accounts for a quarter of all UK private equity-backed buyout deals in terms of number and 29% in terms of aggregate deal value. 

A breakdown of UK private equity-backed buyout deals by type reveals that LBO transactions continue to be the most common transaction type in the UK in 2015 YTD, though it has seen a decline in prominence over recent years. This could be linked to fund managers’ comparative struggles to raise sufficient debt for buyout transactions in light of the implementation of capital adequacy regulations such as Solvency II. LBOs accounted for over half (54%) of all private equity-backed buyout deals for the period 2006 to 2015 YTD; nonetheless, the annual breakdown shows that while such transactions accounted for 70% of all deals in 2006, they contributed 50% of the total in 2014, with further decline in 2015 YTD: only 47% of all private equity-backed buyout deals so far this year have been LBOs. 

Conversely, the market share that add-on transactions have accounted for increased from 13% in 2006 to 40% in 2011, and in 2015 YTD add-ons contributed 34% of the total number of private equity-backed buyout deals in the UK. This indicates an increased take-up of buy-and-build investment strategies over recent years. Increased interest in add-on transactions could be due to the various benefits they offer compared with traditional buyouts. For example, growing a company via acquisition can be an alternative to organic growth by increasing a portfolio company’s competitive position through combining synergies.

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