Private equity deal volumes plunge again

Tim Wallace
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THE NUMBER of private equity deals in the UK fell for the fourth consecutive quarter in the three months to September, according to new research out today.

Just 77 private equity deals were struck in the last quarter, professional services firm BDO revealed today, as poor funding conditions made it difficult for firms to borrow.

That is the lowest level since the middle of 2011, when 68 were recorded, and the second lowest number in two years.

As well as struggling to borrow, private equity firms are also having difficulty raising new funds.

But on top of that, a lack of assets coming to market has pushed up their prices, with deal values up 11 per cent, again making it harder to make a good return.

However, the number of trade deals – acquisitions by firms – increased, hitting 466 in the three-month period, its highest level since the third quarter of last year.

“These figures show that cash-rich corporates are gaining ground by making strategic deals for growth and synergies whilst private equity deal flow is being hampered by the current funding environment,” said BDO’s Peter Hemington.

“There’s been a huge shift in private equity deal structures in the past few years where deals, which once typically comprised of 60 per cent debt to 40 per cent equity, are now funded by around 70 per cent equity. Given this structure relies more heavily on strong earnings potential to provide sufficient returns, private equity companies are struggling to compete with corporates on anything but the highest quality businesses.”