In Q2 2023, UK private equity (PE) deal value “increased 13.2% quarter-over-quarter (QoQ) while the estimated deal count increased for the fourth straight quarter, signalling the start of a potential recovery in UK dealmaking,” according to an update from Pitchbook.
Pitchbook noted that “in light of tightening monetary policy, PE sponsors have approached dealmaking with more caution,which has translated into smaller deals; deals ranging from £100 million to £500 million have accounted for more than 60% of deals year to date (YTD).”
Take-privates and carveouts remain “an important theme due to a combination of market timing and structural market issues.”
Pitchbook also mentioned that “in Q2, financial services saw a record £10.0 billion in deal value, sending a clear message that the UK’s financial sector is still open to dealmaking.”
Pitchbook added that UK PE exit value “has been rising for four consecutive quarters and has been buoyed by five mega-exits exceeding £1 billion YTD.” This has spurred the median exit value “to increase by 14.2% YTD from 2022.”
Accounting for 73.0% of exit value in 2023, corporate acquisition “has been the most common exit route as opposed to buyouts or public listings.”
This is due to costlier leveraged buyouts (LBOs) stemming from the rise in interest rates, “as well as to the muted initial public offering (IPO) market.” Stripping out the five mega-exits “that account for half of exit value YTD, exits are pacing noticeably lower than in previous years as sponsors hold on to their assets for longer.”
Pitchbook also revealed that UK PE fundraising is “on track for a record year and could finish 60% higher than it did in 2022 if the pace set in H1 2023 continues in H2.” H1 2023 saw 22 funds close on more than £30 billion, “almost as much as full-year totals in 2020 and 2021.”
This is the result of the closing of three large funds “from experienced buyout managers—Permira, KKR, and Oakley—which seem like the only industry players able to fundraise in the current climate.”
However, even in the UK, we have “seen some cracks form. Middle-market funds are
pacing for one of the worst years in the past decade, and the median time to close funds is increasing.”
The UK government’s £75 billion pension-fund injection “into VC could be meaningful and timely, but the impact is uncertain.”
In July 2023, “the chancellor Jeremy Hunt announced a plan to unlock at least 5% of assets from the nine largest UK pension funds to invest into private startups by 2030.”
Currently, the percentage of commitments from defined-contribution (DC) funds sits under 1%.
Therefore, according to the government, this would “equate to £50 billion of capital from private DC schemes by 2030 if all such schemes in the UK committed to the agreement.”
Doubling the existing local government pension scheme allocations “in private equity to 10% would equate to a further £25 billion by 2030.” Given VC deal value in the UK equated to £29.0 billion in 2022, Pitchbook believe “that even a £50 billion investment over a multiyear period till 2030 could meaningfully support investment in the region, especially at the lower valuationsseen so far in 2023.”