Private Equity investment into Yorkshire plunges

Research from KPMG showed that transactions involving private equity investors during the first quarter fell by 67 per cent and values more than halved year-on-year.

Just five deals completed between January and March, worth a combined value of £510m, compared to the 15 deals totalling £1.16bn which completed in Q1 2018.

The decline is attributed to a cocktail of factors – from ongoing Brexit uncertainty, rising prices, a scarcity of quality assets coming to market and increasing concerns about global trade policies.

Christian Mayo, head of Corporate Finance at KPMG in Yorkshire, believes the smaller drop in the sum invested compared to the deal volume is indicative of fierce competition for a smaller number of assets amongst buyers, leading to a strengthening of pricing.

He said: “While it remains the case that there is a lot of dry powder in the market, it comes as no surprise that across the board, private equity deal volumes fell in the first quarter. As executives returned to work at the turn of the year and the original March 29 Brexit deadline loomed large, there was a palpable sense of caution kicking in and some processes being put on hold.

“However, we certainly didn’t see confidence disappear. While private equity firms are perhaps being more considered in how and where they invest, they are still willing to pay big multiples for those businesses they see as high-value and resilient. Their approach has been, bid hard or don’t bid at all.”

KPMG’s analysis also suggests there remains healthy interest in UK corporates from overseas private equity investors – notably those from the United States and Europe. However, anecdotal evidence indicates a number of transactions involving European investors were put on hold during Q1, as uncertainty around Brexit intensified.

Looking to the months ahead, Mr Mayo believes that though volumes may continue to soften while economic and geo-political uncertainty abounds, private equity investors will still be keen to put their war chests to work for the right opportunities.

He said: “With the Brexit can kicked further down the road, there’s a likelihood that vendors who have retrenched into ‘wait and see’ mode, will remain in this holding pattern for the next six months at least, or perhaps even until the end of the year. Of course, if and when some sort of agreement or resolution is reached, then there may well be a spike in transactional activity due to pent-up demand.

“That said, the outcome of the local government elections, and even the European elections at the end of May could focus some vendors’ minds on the possibility of an earlier-than-anticipated change in administration, and with it, a potential change to the UK tax regime. This may persuade some to bring forward their exit plans, even if Brexit remains at that point unresolved.

“In the meantime, private equity teams will remain hungry to invest in quality businesses that have a compelling growth story, especially those backed by strong management teams and which have the focus and confidence to overcome wider market uncertainty. And they will be prepared to pay significant multiplies in doing so.”