Region sees drop in private equity deals as economic headwinds bite

After a stable year for private equity activity in the region in 2022, deployment of capital fell across the industry in the first half of 2023 amid persistently challenging market conditions.

Four transactions were completed in the first half of the year, representing a 60% drop from the same period in 2022, when ten deals completed.

Deal volume was also down compared to the latter half of 2022, falling 50%. This also represents the lowest half-year result for the region in over 20 years.

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, deal value experienced a more modest drop, falling to £240m in H1 2023, representing a 27% decrease from the first half of 2022, when transactions totalled £331m.

However, deal value was still higher than the second half of 2022, when only £129m worth of deals were completed.

Half of the deals completed in the first half of the year were in the manufacturing  sector, a reflection of the region’s strong manufacturing ties. An additional two deals were completed in the business and support services industry. Notably, Equistone Partners Europe’s acquisition of Pudsey-based Nexus in January was ranked among the UK’s 20 largest private equity deals for the first half of the year.

Across the North of England, 13 deals completed in the first half of the year, accounting for 22% of all UK deals. In terms of completed transactions, the North was not far behind London’s 17, although deal value remained lower, attracting £795m in capital as opposed to over £2bn in London.

The continued dip in private equity activity comes amid stubborn inflation figures and rising interest rates across the UK and much of Europe. Given widespread economic uncertainty in the first half of the year, the fall in deal volume has been attributed to a lack of supply, with private equity houses holding out for a rise in valuation figures before bringing assets to market.

Despite this, the UK market was once again the busiest by volume and came in second in terms of value, with 59 buyouts totalling €5bn. Germany represented the largest market by value with €5.6bn from 39 deals, while France, with 42 buyouts worth €4.7bn, ranked second for volume and third in terms of value.

Sebastien Leusch, investment director at Equistone Partners Europe, said: “Just as we saw in the second half of 2022, persistent economic uncertainty coupled with rising interest rates and inflation have all created a more challenging market. Given this, the fall in the number and value of deals across Yorkshire and the Humber in the first half of 2023 isn’t surprising. However, deals like our acquisition of Nexus earlier this year show the immense level of business potential within the region, even during periods of slower economic growth.

“As we head into the second half of the year, we’re likely to see deal activity begin to pick up again across the UK, given the pent-up supply from private equity houses. There remains a number of ambitious, high-quality management teams and businesses both in Yorkshire and the Humber, as well as across the North of England. Therefore, the region is likely to continue being a hub for private equity deal activity over the coming years.”