US private equity firms step in where UK houses remain cautious
US firms are increasing their share of the market as UK private equity houses retreat amid market uncertainty.
Exclusive data seen by City PM shows the number of private equity investments in the UK fell by 17 per cent in the first half of the year. Investments by UK PE houses plunged 27 per cent compared to the same period last year.
In total, UK private equity firms accounted for 58 per cent of the investment market by the number of deals, according to new analysis by accountancy and business advisory firm BDO. This is down from 66 per cent in 2019.
Simon Wood, M&A partner at Addleshaw Goddard said UK houses are facing a “cocktail of headwinds” due to the pandemic so it is unsurprising they are pulling back from deals. UK houses are focusing on triaging their existing portfolios as well as facing “uncertain valuations of new investments, and the traditional lending banks being less keen to finance strategic deals,” Wood added.
By contrast the US share of the market grew five per cent to 25 per cent in the first half of 2020, while the rest of the world accounted for 17 per cent, up from 14 per cent.
While the US economy has suffered heavily since the onset of the coronavirus crisis, private equity firms have bounced back in recent months. Leading US firm KKR reported yesterday it raised a record $16bn in the second quarter as markets surged from March lows. Blackstone also benefited from a strong fundraising quarter.
Graham Cross, a partner in Addleshaw Goddard’s private equity practice said: “It’s possible that the prevalence of US investors arises because they often invest in the larger deals which may have been more protected from recent market volatility.” While UK investors have been affected by falls in mid-market volumes, he noted.
There is some hope that activity will pick up towards the end of year as the pandemic settles.
Wood says: “We expect to see UK PE engaging more in the fourth quarter and into next year. Plc interim accounts season… will be instructive as it will provide the first widely-available concrete evidence of the effects of Covid on various sectors”.
“Many PE houses continue to hold lots of dry powder and will be under pressure from investors to deploy funds as we emerge more fully from lockdown and the economy begins to recover,” adds Jamie Austin, BDO’s national head of private equity.