Monday 17 February 2020 12:15 am

US private equity funds swoop on UK for cheap deals

The acquisition of UK companies by US private equity funds jumped 53 per cent last year as the depressed value of UK businesses make them attractive to overseas buyers.

The value of UK companies acquired by US funds hit £14.2bn last year, up from £9.3bn in 2018.

Brexit and pre-election uncertainty meant UK shares went through a significant period of underperformance after August 2019 compared to European listed companies.

Read more: Sophos shares jump as it announces £3bn US private equity buyout

The FTSE 100 has risen just over four per cent over the last year, while the FT Eurofirst 300 index has risen 15 per cent.

The widening valuation gap also had an impact on large UK private companies.

The research, by law firm Mayer Brown, also showed the value of acquisitions of UK companies by EU-based funds increased to £1bn last year, up from £42m the year before.

Acquisitions by Chinese funds reached £515m last year, compared to a negligible amount the year before.

The depressed value of UK companies compared to their European peers could continue as the Brexit negotiations continue Mayer Brown partner Perry Yam said.

Read more: UK approves £4bn sale of defence firm Cobham

“There are still plenty of buying opportunities in the UK for PE funds. They can continue to draw on record levels of dry powder and access to debt is as abundant as ever.

“But don’t expect the M&A market to suddenly race ahead. Valuations still need to be sensible and well-founded for PE funds, and the last 12 months has seen weak trading for the UK economy – denting earnings’ growth and stretching valuations. Sellers will need to reflect that in their asking prices.

“It will always be difficult for a business owner to accept their business is worth less than they had been told it was at the start of a sales process,” Yam said.

Major acquisition of UK companies by US funds in 2019 included Thoma Bravo’s £3bn takeover of software maker Sophos and Advent International’s £4bn deal for defence and aerospace business Cobham.