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1:24 PM 11th February 2020

Yorkshire Private Equity Market Dips As National Dealmaking Stutters

Amidst an overall decline in UK private equity activity, the middle market in Yorkshire & Humber has seen a fall in the number of transactions and aggregate value

Private equity deal activity in Yorkshire & The Humber fell by nearly a quarter (24.1%) in 2019, according to new research from KPMG. The news comes as UK private equity deal volumes dropped to their lowest levels in recent years.

KPMG’s latest study of private equity transactions in the region shows that 44 deals were completed in 2019 at mid-market level, compared to 58 deals in 2018. Meanwhile, the combined value of transactions in the region declined by nearly a fifth (18.6%) last year, down from £3.6bn to £2.9bn.

KPMG’s analysis of all UK transactions involving private equity investors indicates that a total of 978 deals completed over the course of 2019, with a combined value of £86.5bn. This was the fewest number of private equity transactions seen in the UK since 2014, and a fall of 19% on the previous year, which saw 1,207 deals worth £106.6bn.

The UK mid-market also saw a decline in deal volumes, recording 532 deals in 2019 compared to 623 in 2018, albeit the combined value of these deals increased from £38.3bn to £39.9bn.

Christian Mayo
Christian Mayo
Christian Mayo, head of corporate finance at KPMG in Yorkshire, said: “Leeds has a strong private equity offering and the wider region has still seen a considerable number of deals complete over the past 12 months as investors scour the market for quality businesses. While there is confidence in the market, our research shows the impact that persistent uncertainty around Brexit, coupled with broader geopolitical turmoil, has had on investor appetite locally and nationally.

“The mid-market itself, which has been the stand-out area of UK private equity, has driven a consistent level of activity in the region in recent years. Yet, despite the relatively healthy volume of deals involving companies in Yorkshire and The Humber, the imbalance between demand from private equity to deploy capital and the number of opportunities to invest in buyout deals in high quality assets remains an on-going dynamic. One of the consequences of this lack of supply has been a continued skew of activity towards bolt-on acquisitions for portfolio companies, which made up more than half of deals nationally.

“Meanwhile, it’s evident that 2019 was not considered to be a prime year for private equity to generate optimal exit returns as investors held on to assets, with exit volumes dropping from 211 in 2018 to 139 in 2019. The backlog of private equity exits should in theory come to the market this year and in 2021 and boost deal volumes.”


Looking ahead to 2020 and beyond

Christian Mayo added: “The fundamentals of private equity remain strong. The investor community is bringing more funds to the table and is evolving and flexing their investment styles to deploy capital across different parts of the market and adapt to the competitive environment. In fact, the only real constraint on dealmaking is the relative scarcity of high-quality, well-run, resilient businesses with sufficient opportunity to create or add value.

“Now, after a long period clouded by so much uncertainty, there is at least some clarity on the political environment and the early signs are there that this may stimulate a resurgence of private equity-related activity across the country - at least in the short to medium term. Companies of all sizes are starting to feel more emboldened to proceed with plans they have had on ice for the past several years. And private equity funds remain eager to deploy their ample dry powder. Plus there is also a possibility that the Government shifts its tax policy focus from the end to the beginning of the entrepreneurial journey – all with the purpose of incentivising innovation and business investment. That might mean making changes to Entrepreneurs’ Tax Relief, which is why some vendors may be encouraged to cash-out sooner rather than later.

“But, despite a burst of new year optimism, there is nevertheless a recognition that trading conditions remain fragile, and although Brexit is now a certainty, there remains doubt around our future trading relationships once the transition period expires at the end of the year.”