The UK’s private equity industry remained resilient in the first six months of 2022, despite significant macroeconomic headwinds, according to provisional half-yearly data from CMBOR, the Centre for Private Equity and MBO Research based at Nottingham University Business School and supported by Equistone Partners Europe.
The 96 UK buyouts completed in H1 2022 were worth a cumulative £19.7 billion, representing a fall from the 149 deals worth £26.6 billion during the corresponding period last year, when pent-up demand drove a post-Covid bounceback in buyout activity to record post-2008 highs. However, cumulative deal value for the first half of 2022 was still the second highest H1 figure since 2007. This comes despite significant inflationary pressures, rising interest rates, ongoing global supply chain complexity and war in Ukraine.
As was the case six months ago, deal value was buoyed by the long-term upward trend in average deal size and the growing frequency of £1 billion-plus ‘mega-deals’. The rising tide of these transactions, which accounted for 77% of all deal value in the first half of the year, coincides with continued fundraising growth across the private equity industry, with GPs deploying record levels of capital into increasingly large deals. The seven £1 bn-plus buyouts completed this year means mega-deal volume is already the second highest on record after 2021, tied with the full-year figures for 2017 and 2019.
That is not to say that private equity investors have been blind to the turbulent economic environment. The data from CMBOR also points to capital structures being more conservative than at any point in the last 10 years, with sponsors and lenders alike clearly cautious against a backdrop of rising interest rates and squeezed earnings. For structures above £100 million, the average equity portion has risen from 37.3% in 2021 to more than 50% so far this year – meaning larger buyouts have been majority-funded by equity for the first time since 2012. In a corresponding move, the average debt portion has fallen to 47%, down from 62.7% last year.
London leads way as UK retains top spot for buyouts and exits
London and the South-East continued to lead the UK’s deal activity, with the capital and surrounding region accounting for 33 deals worth £8.7bn. The Midlands also performed strongly, with the mega-deal buyouts of Clinigen (£1.2bn) and Punch Pubs (£1bn) helping to drive £3.3bn in deal value across 21 transactions – already a higher cumulative value than all but two of the region’s top full-year figures since 2008.
The UK remains Europe’s largest private equity market by both volume and value, with its 96 deals equating to €23.3 billion in activity. France ranked second in terms of volume, with 54 deals totalling €3.4 billion, while Germany placed third in both volume and value, with 49 buyouts valued at €5.8 billion. The Netherlands was second to the UK in value with €13.5 billion from 22 deals, driven principally by 3G Capital’s €6.3 billion buyout of Hunter Douglas and Apax Partners and Warbug Pincus’ €5.1 billion acquisition of T-Mobile Netherlands.
The UK’s leading position and the skew towards larger deals were also in evidence with exit activity. While the 55 UK investments realised by buyout firms in H1 2022 represents a 30% year-on-year fall to a level equivalent to the Covid-disrupted H2 2020, the £15.7 billion (€18.7 billion) aggregate value of these transactions was the second-highest H1 figure since 2017, eclipsing both Germany (18 exits worth €7.0 billion) and France (28 exits worth €6.1 billion). This points again to the outsized impact of mega-deals, such as Bridgepoint’s £5 billion sale of Element Material to Temasek.
Having accounted for more buyouts than any other sector in 2021, TMT continued to attract sizeable private equity investment, accounting for 20 UK deals worth £6.2 billion in the first six months of the year. This figure, which is already close to exceeding 2021’s whole-year total of £7.2 billion, was driven in large part by Permira’s £4.6 billion acquisition of Mimecast. Healthcare has also continued to prove attractive, with 17 transactions worth £5 billion, already the sector’s highest full-year deal value figure on record.
