Autumn update – UK private equity mid-market post Brexit
It’s hard not to start our latest briefing without mentioning Brexit. Subsequently, much has been written about what it might mean for the economy as a whole and private equity in particular. From discussions with investors and management teams in the industry, the consensus seems to be:
“not as bad as we thought but let’s wait and see what happens next”
Deal activity sparks positivity
Data drawn from our Overview research since the vote notes that:
20 primary buyouts have been completed since June 23rd compared to 40 for the 6 months prior to that.
Additionally, 7 secondary buyouts and 4 trade sales have also been completed.
These figures point to a very healthy continuation of activity in the UK mid-market despite the vote. One could even be optimistic! Likewise, if the BVCA North West Dinner, which we supported last week, is anything to go by, mid-market investors are still very much open for business.
There were more than 500 Investors, LP’s, Advisors, Chairmen and CEOs in the room and Brexit was very much at the forefront of all discussions. There were a plethora of mixed messages coming from different sectors, markets and business sizes. The common sentiment was that nothing tangible has actually happened yet (other than a significant change of Government) and there is no clear idea on when Article 50 will be invoked let alone a cohesive strategy for negotiations. So most had a stoical approach feeling the need to “just get on with business” while remaining cautious and realistic.
For UK based investors many of the market fundamentals remain positive with debt being cheap and funds sitting on significant amounts of dry powder. Both PwC and Preqin put this figure in the 10’s of billions. The fly in the ointment is that, for good businesses, vendor price expectations remain high. Without a softening of this, private equity will have to become comfortable with more risk one way or another, either greater multiples or less “perfect” businesses.
“Brexit” itself may not be the enemy but the uncertainty surrounding the current market will deliver winners and losers in a more binary fashion than previously. The perennial challenge for Private Equity is to identify the winners and support the best management teams.
The Recruitment Outlook
Macro uncertainty leads to an increased focus on things which businesses can control such as fixed costs, investment plans, and service delivery.
Uncertainty can also lead to an extension of hold periods, in turn leading to a lack of “liquidity” in the people market as seasoned directors are tied in for longer.
It is important that businesses are able to be nimble and fleet of foot in such a landscape. Interim managers can be an excellent means of delivering this flexibility in the senior team. Members of our Elite Interim Network can hit the ground running and swiftly add demonstrable value across the spectrum of business activities. Whether it’s delivering efficiency improvements in operations, the supply chain, workforce or re-financing, interims can play their part. Equally, they are change experts, adept at helping businesses position for new growth opportunities.
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