With 2014’s first quarter now over, and against the backdrop of the wider economic recovery, how is UK private equity deal flow faring?

  2013 2014
MBO 10 25
SBO 8 7
Growth Capital 9 12
Trade Sale 20 16
IPO 3 7
Distressed Purchase 1 0


New investments are significantly up on 2013 with 15 more MBOs and Growth Capital investments. The absence also of any distressed purchases points to a much more positive outlook for UK plc.

However, when comparing MBO deal values, 2014 has an average spend of £70m whilst the 2013 average is £93m; a substantial difference considering it’s across 15 less deals. What are the reasons for this? There has been a flurry of activity in the lower market as small business focused investors sense opportunities – Business Growth Fund have completed five deals already this quarter.

Also, the gap in price expectations would seem to be closing as, despite favourable debt conditions, investors are being careful not to overleverage and avoid sparking an epidemic of deal fever. How long such prudence lasts will be interesting to note.

The IPO surge continues on, impacting on trade sales, as investors continue pouring into public markets before the supposed window of opportunity shuts. There have been seven floats already in Q1 with the consumer and online sectors proving particularly popular. But whilst retailers McColl’s, Poundland and Pets at Home have a tangible product, many remain sceptical about the longevity of the online businesses particularly with the size of their initial market capitalisations.  

King.com, the popular game developer for smartphones and tablets debuted on the NYSE with a colossal $7bn initial market cap. Almost immediately the share price took a hit and $1bn was wiped out through a 16% fall. Outside of private equity ownership, ao.com surprised with its market cap of £1.2bn and immediate surge in share price, although it has now fallen, returning to its debut price, and private equity backed Just-Eat has just entered the fray.  The online space will be interesting to watch as the general consensus is that there are just a few shades of a dotcom bubble forming.

The mega funds are back as Permira reaches the final stages of its €5bn fund and KKR and Bridgepoint are about to begin raising funds of €3.5bn and €4bn respectively. Interestingly, all three are less than their pre-global meltdown fund amounts, but we’re getting there.

There are signs everywhere of a return to the good (for now) old days, but it’s important not to forget the lessons of yester year. Confidence is high, the economy is growing, investors are raising huge funds, IPOs are in fashion and even Liverpool look like they might win a title! To think… it was going so well. 

Sam Smith, Managing Director