Buy-out numbers drop in East Midlands

The East Midlands has seen a drop in the number and value of private equity-backed management buy-outs during the first six months of 2018, according to provisional data from the Centre for Management Buy-Out Research (CMBOR) at Imperial College Business School, which is sponsored by Equistone Partners Europe and Investec Specialist Bank. So far this year, there have been a total of five deals in the region amounting to £119m, reflecting a national trend of increased smaller transactions, many of which have originated from private sellers.

Across the UK, there have been 92 buyouts and 65 exits in the first half of 2018. Nationally, the proportion of deals sourced from private vendors has increased from 46% to 61% in the six months to June 2018, with the value of these private deals accounting for 19% of the total amount.

Paul Harper, partner at Equistone Partners Europe’s Birmingham office, explained that the shift to smaller sales demonstrated that family-run firms were taking advantage of private equity backing.

“The increase in small transactions is sowing the seeds for tomorrow’s mid-market, as many small, family-owned firms take on private equity backing to accelerate their growth. This is also enabling them to potentially de-risk their personal exposure and diversify their wealth,” said Paul.

Shaun Mullin, of Investec, added: “We are seeing strong appetite from private equity houses – many of which have recently raised capital – to back primary deals, particularly as the business’s first injection of institutional capital. Such funding is often providing succession solutions for owner-managers or to support ambitious management teams to achieve their development aspirations, whether organically or through acquisition. This is, in essence, private equity getting back to its roots of providing flexible funding and assistance to fast-growing businesses, and equally helping to promote those companies where accessing capital is often the most difficult.”

The data released by CMBOR contrasts with deal activity in 2017. Last year in the East Midlands, there were 12 private equity-backed buy-outs with a combined value of £839m.

This year’s deal activity levels in East Midlands is consistent with all other UK regions, apart from London and the South East, where management buy-outs are on course to match or exceed 2017 deals. With the exceptions of France and Germany, much of Europe has also experienced a reduction in transactions.

But with several buy-outs and exits in the pipeline, the second half of 2018 is set to see a significant boost in activity.

In terms of private equity-backed exits, Midlands-based UK Power Reserve was in the top five largest in the UK during the first half of 2018. The business was sold by Equistone Partners Europe and Inflexion Private Equity to Singapore-based Sembcorp for £340m in May. The sale of Derby’s GCI for £75m was the largest East Midlands deal.