The value of smaller private equity buyouts grew 25 per cent in the three months to September to almost GBP600m, indicating a returning confidence amongst Britain’s small and mid-sized companies in the aftermath of recession.
Data from The UK Growth Buyout Dashboard – a quarterly trend analysis of private equity transaction in the GBP10m to GBP100m segment produced by Cass Business School and Lyceum Capital – shows 12 companies raised an estimated GBP590m of buyout funding during the period.
This compares with 15 transactions and GBP474m of funding in the previous quarter (April to June), when activity spiked in the run up to the coalition government’s emergency budget and the anticipated capital gains tax increase.
The report’s authors say the figures provide further evidence that business owners and entrepreneurs, many of whom are thought to have mothballed plans during the downturn, were returning to the market to realise value or secure growth capital for expansion. They also contrast with official data from The Bank of England which show traditional bank lending to SMEs is falling.
Despite clearly indicating a sustained recovery in smaller growth buyouts, the study also shows that activity remains significantly behind peak levels seen before the advent of the credit crunch.
Although representing a fall from the 15 deals completed in the three months to June – a period buoyed by a post-election, pre-Budget run of transactions – the figures represent the second highest quarterly total since October 2008 and provide further evidence of an underlying upward trend in private equity investment in small and mid-sized companies.
The average deal value rose to GBP49.1m, up from GBP36.9m in the previous quarter.
Management buyouts continued to remain the preferred transaction type for private equity investors (eight of 12 deals), although a notable rise was recorded in the volume of secondary buyout activity (four), which was on par with a nine quarter high in Q3 2008.
The report’s authors say the announcement of a public to private during the period didn’t provide sufficient evidence of the anticipated surge in de-listings, although many AIM- and main-market listed companies continue to experience depressed valuations.
Investment focus also remained biased towards private equity’s “heartland” sectors, with the majority of companies raising capital operating in business support services and retail and consumer, with notable transactions including stationery retailer Paperchase and specialist outdoor retailer Snow & Rock Sports.
Since July 2008, 36 per cent of companies attracting investment operate in the field of business support services – the highest proportion – followed by retail and consumer (18 per cent) and healthcare (14 per cent). The report also shows that high-growth markets such as energy and environment remain largely un-tapped by lower mid-market private equity funds, accounting for only one deal over the same 27-month period.
The number of exits from private equity investments over the last three months also increased to a nine-quarter high (11), buoyed by a growth in trade sales and secondary buyouts. Since July 2008, disposals to trade buyers have accounted for more than twice the number of secondary buyouts (67 per cent versus 31 per cent.
Andrew Aylwin, partner at Lyceum Capital, says: “Following a tough few quarters for most businesses, owner-mangers are coming up for air, dusting off their pre-recession business strategies and looking to either realise value or secure capital and a business partner for the next leg of the journey. Many have had their business models stress-tested like never before and they’ve survived or prospered, creating an opportune time to sell or expand.”
