Midlands PE buyouts total £3.3bn during first half of 2022

Will Copeland

An active buyout market in the Midlands played a key role in the resilient performance of the UK’s private equity industry in the first six months of 2022, new research has revealed.

According to provisional half-yearly data from CMBOR, the Centre for Private Equity and MBO Research based at Nottingham University Business School and supported by Equistone Partners Europe, 21 buyouts of Midlands-based companies were completed in H1 2022, totalling £3.3bn in aggregate deal value.

Those figures are on track to equal the highest annual volume recorded in the Midlands in the past decade and already represent a higher cumulative value than all but two of the region’s full-year totals since 2008.

The 21 completed deals, comprising 10 in the East Midlands and 11 in the West Midlands, helped propel UK-wide buyout figures to 96 deals worth £19.7bn in total, the second highest H1 figure since 2007, despite significant inflationary pressures, rising interest rates, ongoing global supply chain complexity and war in Ukraine.

Deal value was buoyed by the long-term upward trend in average deal size and the growing frequency of £1bn+ “mega-deals” – both nationally and in the Midlands.

These types of transactions made up 77% of all UK deal value in the first half of the year and have already equalled the full-year figures for 2017 and 2019. The West Midlands accounted for two of the UK’s seven £1bn+ buyouts (as well as three of the UK’s biggest 10 deals), the highest count of large deals in any region outside of London – namely, Triton Investment Management’s £1.2bn take-private of pharmaceuticals group Clinigen and Fortress Investment Group’s £1bn acquisition of Punch Pubs.

Even when excluding these mega-deals, the average deal size recorded in the Midlands during the first half of the year was almost 40% higher than the region’s long-term average for <£1bn buyouts, while the cumulative deal value for sub-£1bn transactions during the period was over 50% higher than the average H1 since 2008.

One of these deals was Equistone’s exit and partial reinvestment into Team ITG, a strong Midlands growth story, with new majority owners Bridgepoint Europe supporting the quaternary MBO.

Will Copeland, investment manager at Equistone, said: “The Midlands remains home to a fantastic array of businesses, of all sizes. That’s been reflected in how busy private equity investors have been in the region so far this year, despite the uncertainty affecting the UK economy, with deal volume and average deal size, excluding the ‘mega deals’, exceeding the long-term average.

“In the second half of the year, while the market will continue to face significant headwinds, we still foresee strong demand for capital from ambitious businesses looking to fund their continued growth.”

That is not to say that private equity investors have been blind to the turbulent economic environment.

The data from CMBOR also points to capital structures being more conservative than at any point in the last 10 years, with sponsors and lenders alike clearly cautious against a backdrop of rising interest rates and squeezed earnings. For structures above £100m, the average equity portion has risen from 37.3% in 2021 to more than 50% so far this year – meaning larger buyouts have been majority-funded by equity for the first time since 2012. In a corresponding move, the average debt portion has fallen to 47%, down from 62.7% last year.

Christiian Marriott, head of investor relations at Equistone, added: “It’s significant that the UK’s private equity industry has proved resilient in the face of considerable macro headwinds during the first half of the year.

“Many firms have remained active and deployed capital amid a challenging economic backdrop. These robust figures show investors’ continued faith in the ability of private equity to add value to companies with a long-term perspective that doesn’t simply depend on market tailwinds.”

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