Why there could be a burst of private equity activity after the referendum

William Turvill
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EU Referendum - Signage And Symbols
Private equity activity is thought to have slowed in the UK so far this year (Source: Getty)

Private equity firms could be gearing up for a post-referendum surge of activity, new research suggests.

Transaction volumes in private equity are believed to have dipped this year ahead of the Brexit vote.

But new figures from primary research partner Third Bridge, which conducts market analysis for private equity firms, suggest interest in activity remains strong.

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Figures from SL Capital Partners and Unquote suggest the number of European private equity-backed deals declined by 11.7 per cent year on year in the first quarter of this year. But Third Bridge has experienced a 13 per cent growth in research volumes.

Emmanuel Tahar, co-founder and chief executive of Third Bridge, said: “The industry is clearly cautious ahead of the EU referendum, but this caution hasn’t led private equity firms to stop investing in research. Quite the opposite, they are using it to seek out opportunity beyond the obvious.

“The high level of commissioned research also suggests that come 24 June there will be a lot of dry powder ready to ignite. The vote is critical to the sector and I wouldn’t be surprised if a number of our clients have already cancelled their summer holiday plans in expectation.”

The suggestion there could be a surge in activity after the referendum was also backed by Graeme Gunn, a partner at SL Capital Partners.

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“There definitely has been an impact around Brexit on new transactions,” he told City A.M.

“I suspect people who are selling companies don’t necessarily want to sell them in this environment because you’re going to get a negative valuation impact just because of the uncertainty. I think it’s on both sides – I think vendors are probably stopping processes and I don’t think the private equity guys are necessarily keen to execute in this environment.”

On an anticipated uplift in activity after the vote, he said: “We do see the funds switching in the second half of this year from a divestment to an investment stage...

“Private equity tends to thrive on change and this sort of dislocation, so we would imagine that they would find opportunities that were maybe not there today.”

Gunn expects an increase in activity no matter which way the vote goes. He said: “People just want certainty one way or the other… I wouldn’t say we would see a slow down either way.”