Tuesday 3 August 2021 9:30 am

Wave of dealmaking sees private equity investment in UK soar to highest level in five years

Private equity deal value and volumes in the first half of the year rose to levels not seen since 2017, as investors gained confidence in post-pandemic recovery.

There was a marked interest in mid-market private equity dealmaking, as funds competed for quality assets and completed 377 deals in the first six months of the year, with a combined value of £20.7bn, according to new research by KPMG.

This represented the highest levels of activity since H1 2017, and a significant increase on the same period a year earlier, which saw 260 deals at an overall value of £14.9bn.

In the private equity market overall, dealmaking was also at its highest in five years. Between January and June 2021, a flurry of 785 private equity deals were completed with a combined value of £73.7bn – an increase of 61 per cent in volumes and 48 per cent in value compared to a year earlier.

Investors were particularly eager to pour into deals in the Business Services and TMT sectors, with a focus on companies that had strong tech capabilities. These sectors accounted for a 62 per cent lion’s share of PE investment in the UK’s mid-market, as well as spike in deal value.

The value of TMT deals completed in the first half of the year almost doubled from £2.8bn last year to £5.1bn – with firms that had proven their resilience after the pandemic and high growth potential catching investors’ eyes.

“Unlike many other sectors, the pandemic actually acted as a catalyst for growth instead of restricting it,” said Alex Hartley, head of private equity at KPMG’s UK corporate finance practice.

PE firms have been particularly keen on digitally-driven businesses that could keep pace with accelerated demand during the pandemic, which enabled such firms to bring forward exit strategies as soon as 12 months, the research found.

“However, a lot of sectors are converging on tech, so pricing in those areas has been strong. Private equity investors are likely to continue chasing the businesses that have fared best and shown robustness, so we expect to see further activity in sectors such as TMT, Business Services and Healthcare, as well as those that can demonstrate a strong ESG angle,” Hartley said.

The announcement of vaccine rollout programmes at the end of last year fuelled a wave of mid-market PE exit activity in the final three months of 2020 that hadn’t been seen in three years – but they then dropped by 29 per cent in H1 2021, from 66 to 47.

“Confidence, pent-up demand and sheer relief is likely to lead to an increase in GDP and ensure a healthy market for mid-market PE transactions, albeit with substantial variation between sectors,” said Jonathan Boyers, head of KPMG’s UK corporate finance practice.

Investors’ high reserves of capital, debt, and uncertainties about capital gains tax change, all suggest the conditions “look positive” for continued mid-market PE deal momentum in the second half, according to Boyers’ forecast.