Global private equity investment was down by 25 per cent to just USD93bn in the first half of 2012, according to TheCityUK’s Private Equity 2012 report, continuing the decline seen in 2011.
However, although the UK private equity firms saw a similar decline in investments in 2011, buyouts increased to GBP8bn in the first half of 2012, a 38 per cent increase on the second half of the previous year.
Chris Cummings, chief executive of TheCityUK, says: “The global private equity sector has seen a significant downturn in activity since the start of the economic crisis, which is concerning because it is an important source of funds for the growth businesses that are needed to bring economic recovery.
“Our report shows that private equity backed buyouts generated 5.9 per cent of global M&A activity in the first six months of 2012, down from 6.9 per cent in 2011. Recovery in the second half of the year will largely be dependent on stabilisation of the sovereign debt crisis in Europe and improved global growth prospects.
“However, there is some good news for the UK, where the private equity industry is starting to see improvement and remains second in size only to the US. The UK’s importance as a private equity hub reflects its continued attractiveness as a home to a broad range of funds, as well as offering access to a deep pool of private equity expertise. Private equity funds managed in the UK currently back around 3,800 companies, employing around 515,000 people in the UK and 1.2 million people across the world.”
TheCityUK’s report highlights the challenging fundraising environment for private equity. In the first half of 2012 only USD130bn in funds was raised, down a fifth on the first half of 2011. The majority of large private equity funds available for investment are a result of an accumulation of funds by private equity firms in previous years, which were not deployed due to the economic slowdown. TheCityUK estimates that private equity funds under management currently exceed USD2trn, including unrealised funds in existing investments.
The Private Equity 2012 report also reveals that a general deleveraging has occurred since the start of the economic slowdown. Global leverage finance totalled USD692bn in the first half of 2012, down 23 per cent on the same period in 2011. Three-quarters of this was raised through leverage loans, and the remainder through high-yield bonds.
The report also provides a regional breakdown of UK deal activity which shows that firms located in London accounted for 44 per cent of all UK investments in 2011, at GBP2.9bn. The value of deal activity elsewhere in the South-East increased to 17 per cent, from 14 per cent in 2010. Other regions that increased their share of value included the North-West, Scotland, East of England, East Midlands and Wales.
