KPMG: UK private equity investment drops but M&A market looks set to recover
UK private equity investment dipped 20 per cent in the first half of 2024, falling to only 656 deals completed throughout the last six months, according to new data.
Despite the drop-off in investment activity, the value of deals did spike in the second quarter, according to data from KPMG, but challenging macroeconomic conditions continued to persist for the sector.
Mid-market deals fared somewhat better, dropping 11 per cent to 321 deals, and were still up 25 per cent on pre-pandemic levels from the first half of 2019.
Meanwhile, the trend of UK companies being attractive to international buyers continued to persist, with inbound deals according for 42 per cent of all M&A activity during the six months.
Almost half of these buyers were American, KPMG noted.
Around 60 per cent of private equity deals were bolt-ons, where a private equity house adds a company to one of its platform companies, which seems to have grown in popularity as debt costs remain high.
Alex Hartley, head of private equity within corporate finance at KPMG UK, said that despite the slow start to the year, the company was optimistic that “with greater economic and political stability, there are strong fundamentals for the M&A market to return to healthier levels of activity”.
“Both private equity firms and lenders are back in the market looking to complete transactions, albeit the quality threshold for doing deals remains high,” he added.
Hartley said that the company’s own pipeline going into the summer was strong, and was seeing a greater appetite for transactions, especially in sectors like financial services, industrials, and tech, media and telecoms.
“There’s also growing interest in consumer businesses, aided by improving consumer confidence,” he added.
“Looking ahead to the remainder of 2024, after a prolonged period of uncertainty, investors will now be looking at the UK as a more stable environment for investing into new businesses and realising portfolio assets,” Hartley said.
“The focus on deploying capital is here to stay, as many private equity firms are sat on significant amounts of dry powder. Ultimately, the foundations needed for dealmaking have significantly improved over the last few months, and we expect activity levels will continue to rise in the second half of 2024.”