Monday 5 August 2019 3:59 pm

UK private equity investment sinks to five-year low

Private equity investment in the UK has fallen to its lowest level in over five years, as continued economic and geopolitical uncertainty leaves vendors too nervous to put assets up for sale. 

A study of UK transactions involving private equity investors during the first half of the year showed that both deal volumes and deal value have dropped below 2014 levels. 

The research, by auditor KPMG, found that 384 deals were completed between January and June 2019, with a combined value of £28.5bn. This compares to 483 completed deals totalling £31.5bn during the first half of 2014. 

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This year’s figures also represent a significant decline compared to the same period in 2018, with deal volumes down 35 per cent (from 594 to 483) and deal values down 40 per cent (from £47bn to £31.5bn). 

The number of first-half deals involving private equity in the UK’s middle market also fell dramatically, from 273 in 2018 to 199 this year. 

However, the total value of these deals increased, bucking the downwards trends seen elsewhere in the market. £18.4bn was invested in the middle market in the first half of 2019, up from £17.69bn the previous year.

Jonathan Boyers, head of mergers and acquisitions (M&A) at KPMG, blamed the slowdown in transactions witnessed so far this year on “a reticence amongst vendors to bring assets to market”.

“The truth is that private equity remain incredibly hungry to invest,” Boyers continued, pointing to the increase in middle market deal value during the first half as evidence of this.  

But Boyers cautioned: “investors are currently eschewing those higher-risk transactions that they may have been willing to undertake a couple of years ago, when the market was more steady and they could price risk into both the deal and its structure. Instead, they are focusing on those higher quality opportunities that are perhaps considered safer bets in the short term.”

Uncertainty over Brexit is continuing to shape both investor and vendor behaviour, and it is likely that “most deal decisions” will be “deferred until a Brexit outcome is known, Boyers said.

“However, once the Brexit conundrum is resolved, we may see a flurry of asset sales, investment activity and deal making as both sellers and buyers look to make up ground following this lengthy period of uncertainty,” he continued.

Main image credit: Getty