Monday 17 February 2020 12:01 am

US private equity snaps up UK companies on the cheap

The total value of acquisitions of UK companies by US private equity funds jumped 53 per cent last year to £19.9bn. 

According to a report by law firm Mayer Brown, the depressed valuations of UK companies versus their European peers has made them look to be good value for funds. 

Read more: Vanguard partners with HarbourVest to enter private equity industry

The period of Brexit uncertainty, and political volatility more widely, have represented a good opportunity for funds to acquire high quality assets at low earnings multiples. 

The value of the acquisitions has increased from £12.5bn in 2018 and £4.6bn in 2017. 

The research also shows that the value of acquisitions of UK companies by EU-based PE funds also increased to £1bn last year, up from just £46m the year before. 

Acquisitions by Chinese funds reached £515m, up from a negligible value in 2018. Despite this, Yam says he sees very little evidence of increased inflows. 

Boris bounce 

Following Johnson’s election victory and his consolidation of power following Sajid Javid’s departure, partner and co-head of the global corporate and securities practice Perry Yam thinks there is an element of the so-called Boris bounce. 

“Institutions will gain confidence that there will be continuity and certainty of direction,” Yam said. 

However, Mayer Brown suggests that the depressed valuations could continue as Brexit negotiations stagger on. 

Yam said: “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… Sellers will need to reflect that in their asking prices.” 

Industrials tops targets 

According to Refinitiv data, industrials was the most lucrative sector for PE funds with seven deals closed in 2019, worth an estimated £7bn. 

It marks a huge increase from the 4 deals worth just £50m in 2018. 

A significant portion of 2019’s strong industrials performance came from the sale of Cobham to Advent International for £4bn. 

Read more: Advent International teams up with rival private equity firms to plot takeover of Pepco

Despite security concerns the former business secretary Andrea Leadsom waived the deal through in December 2019. 

There were 19 deals in the technology sector, worth just over £4bn, closely followed by eight deals in the media and entertainment space, worth £3.9bn.