Private equity investment halved across Yorkshire in Q1

Private equity investment in Yorkshire declined significantly in the first quarter of 2019.

According to a study of the region’s transactions  by KPMG, deal volumes involved private equity investors fell by two thirds (67%) and values halved (a fall of 56%) year-on-year, with five deals completing between January and March, with a combined value of £510m. This compares to the 15 deals totalling £1.16bn which completed in Q1 2018.

The firm said it was a cocktail of factors – from ongoing Brexit uncertainty, rising prices, a scarcity of quality assets coming to market and increasing concerns about global trade policies – which tempered activity in the M&A market.

Christian Mayo, head of Corporate Finance at KPMG in Yorkshire, believes the smaller drop in the sum invested compared to the deal volume is indicative of fierce competition for a smaller number of assets amongst buyers, leading to a strengthening of pricing.

He said: “While it remains the case that there is a lot of dry powder in the market, it comes as no surprise that across the board, private equity deal volumes fell in the first quarter. As executives returned to work at the turn of the year and the original March 29 Brexit deadline loomed large, there was a palpable sense of caution kicking in and some processes being put on hold.

“However, we certainly didn’t see confidence disappear. While private equity firms are perhaps being more considered in how and where they invest, they are still willing to pay big multiples for those businesses they see as high-value and resilient. Their approach has been, bid hard or don’t bid at all.”

KPMG’s analysis also suggests that with a scarcity of high-quality new deals coming to market and with substantial dry powder available at their fingertips, UK private equity firms are putting greater emphasis on their existing portfolio companies, encouraging them to become more acquisitive and growth-focussed.

In particular, bolt-on investments remain a strong driver of middle market activity across the UK, accounting for more than half of all transactions seen over the past 12 months. The focus of these bolt-on investments has varied from geographic or product expansion to enhanced market penetration or customer acquisition.

There remains healthy interest in UK corporates from overseas private equity investors – notably those from the United States and Europe – thanks in no small part to favourable exchange rates. However, anecdotal evidence from KPMG’s M&A team indicates a number of transactions involving European investors were put on hold during Q1 2019, as uncertainty around Brexit intensified.

Burgeoning demand for technology capabilities continues to be a key driver of activity, with  PE interest in areas such as fintech, healthtech, proptech, and others growing very rapidly.