Private equity sets sights on strengthening portfolios with 35 per cent jump in buy and build deals

The number of private equity buy and build transactions in the UK rose by 35 per cent during 2020, as private equity houses looked to bolster their portfolio during the Covid-19 pandemic, according to research by Rickitt Mitchell. 

Analysis by the corporate finance boutique, in partnership with Experian Market iQ, reveals that a total of 370 bolt-on transactions were completed in 2020 – up from the 276 seen over the course of the previous year. 

The bounce back following the Covid-19 pandemic is highlighted by the active second half of 2020, with 232 transactions completed during that period. In contrast, just 46 deals were completed during the second quarter, at the height of the national lockdown. 

Despite the rise in volumes, the total value of transactions fell by a small portion over the last year. GBP1.2 billion of deals were completed in 2020, just lower than the GBP1.3 billion seen in 2019, which further highlights the trend of bolt-on deals during this period, which typically have smaller average values than other deal types. 

Behind London, which saw 41 transactions in 2020, the South East represented the most active region for bolt-on deals with 35. This was followed by the North West and South West (both 30), Yorkshire and the East Midlands (both 25), the West Midlands (18) and the East of England (17). 

The majority also surpassed or equalled their 2019 totals, with 10 of the 12 UK regions achieving the same or better performance in 2020. Only the East of England, which saw volume drop from 19 to 17 and the South East, which fell from 39 to 35, saw a reduction in deals. 

Neil Mitchell, Partner at Rickitt Mitchell, says: “Bolt-on transactions have been on the rise for some time, however the significant jump in deals during the pandemic has highlighted the continued appetite by private equity for bolt-ons as a route to growth.  

“Private equity houses have seen the opportunity to strengthen their existing portfolios even further and capitalise on new trends. For example, with the rise in remote working, we have seen appetite for businesses with digital capabilities explode, as more traditional companies look to add much needed technological expertise. We’ve also seen a wider spread when it comes to pricing, with some companies’ valuations remaining high while others have taken a hit, providing opportunity to target strategic acquisitions at lower prices. 

“As the “new normal” has begun to emerge, we expect both new investments and bolt-on transactions to remain high for the foreseeable future. PE houses are still sitting on large war chests that they need to deploy to satisfy investors, and opportunities will remain for companies to grow dramatically through strategic acquisitions throughout 2021.”