UK mid-market private equity activity in the UK reached new highs in H1, compared to the same period in 2018 and 2019, according to new research by KPMG.
- UK mid-market private equity activity in H1 2022 remains at historic high
- Bolt-on transactions accounted for 62% of all deals – the highest half-yearly proportion on record
- But H1 saw lowest volume of exits for at least five years, 71.5% down on 2021 and 54.6% down on 2019
UK mid-market private equity activity in the UK reached new highs in H1, compared to the same period in 2018 and 2019, according to new research by KPMG.
Both deal volumes and values declined in H1 2022 after the post-lockdown surge of 2021, down around 19% and 16% respectively on the same period last year but, when compared to 2019, the total of 391 deals completed was 44% higher than the same period in 2019, while the aggregate deal value of £22 billion was 26% higher than the £17.45 billion seen in H1 2019.
Bolt-ons accounted for 62% of all mid-market deals – the highest half-yearly proportion on record – perhaps because they are viewed as a low-risk strategy to support the growth of existing platform businesses. The aggregate value of bolt-ons in H1 2022 was £12.7 billion, also notably higher than the levels seen in both 2018 and 2019.
Business services and technology, media, and telecoms (TMT) led the charge, accounting for nearly two-thirds (60%) of private equity investments in H1, fuelled by the ongoing trend for hybrid working and digitally enabled services.
Healthcare and financial services also performed strongly, with their proportion of deal volumes growing in H1 2022, by 10% and 11% respectively.
At the same time, mid-market deal multiples have dropped only marginally from 12x in 2021 to 11.4x in the first half of the year. In the wider private equity market, deal multiples have contracted from a record level of 13.5x in 2021 to 10.9x in H1 2022.
However, although there was a slight recovery in exit volumes in 2021, UK mid-market private equity exits saw a significant drop-off in H1 2022 – down to just 59 deals at a value of £3.2 billion. This was the lowest volume of exits for at least five years, 71.5% down on 2021 and 54.6% down on 2019.
A knock-on effect of this trend is that the proportion of investments versus exits has declined. In 2020 there were 1.4 investments (excluding bolt-ons) for every exit, in 2021 it was 1.9x. In H1 2022, this imbalance climbed to 2.5, showing that the exit market has decelerated at a greater rate than the investment market.
Business services saw the highest proportion of exits, at 41.4% by volume and 43.8% by value. In contrast, Consumer goods and services has fallen from 16.2% of exits by value to 7.3%, the largest decline across all sectors, reflecting the ongoing volatility in the sector.
Secondary buyouts have now stepped in as a primary exit route, which accounted for 55% of the total volume of exits.
Key takeaway | Continued volatility will persist in the second half of the year and likely perpetuate the slowdown of the number of mid-market deals in more exposed sectors.
