UK buyout activity continues apace despite Brexit vote

"Keep calm and carry on" merchandise may be proving a hit with tourists visiting the UK at this time of year, but the motto could equally apply to the local private equity industry. With the anticipation of the Brexit referendum widely cited as a factor in weaker dealflow in the months leading up to the June 2016 milestone, many observers predicted that a "leave" vote would put a further dampener on private equity activity in the country. However, looking at the headline figures from unquote's proprietary database, this gloomy prediction has apparently yet to materialise.

The UK was home to 16 reported buyout transactions in the month of July, worth an estimated £1.1bn in total. The first surprise is that these figures compare very favourably to the previous months in 2016 - suggesting that the 23 June result has had limited impact so far. In volume terms, this makes July the second busiest month of the year so far, behind the 19 deals covered by unquote" in April but up by more than 75% on the June figure. Value-wise, July also fared well even though activity couldn't match the estimated aggregates of £1.5bn and £1.2bn posted in May and January respectively.

Look out for the upcoming  unquote" Private Equity Barometer, published this week in association with SL Capital Partners, which will explore activity figures in the run-up to the referendum in Q2.

This flattering comparison with earlier months in 2016 could be attributed to the aforementioned jitters that may have seen GPs put off investment in the run-up to the referendum. But, perhaps more tellingly, the volume of private equity deals transacted in the UK in July is actually on par with the 15 deals recorded by unquote" over the same month last year.

source: unquote" data

This is where the comparison starts shining a light on what could be the impact of the June referendum, however. The 15 deals inked in July last year were worth an aggregate £2.1bn, nearly double the overall value of July 2016 transactions. As a result, the average UK buyout in July last year was worth £143m, against £69m for July 2016. This is not down to a single mega-deal skewing the statistics either: July 2015 saw four transactions valued in excess of £150m, including the £946m Quintain deal by Lone Star. There were only two deals valued at more than £150m last month, likely topped by the £200-250m EV buyout of Envision Pharma by Ardian and GHO Capital.

Small- and lower mid-cap investors may have had no issues continuing to put capital to work, but opportunities appear to have significantly dried up at the mid- and upper-end of the market. With that in mind, it might take a few more weeks to properly assess whether it truly is "business as usual" for the UK private equity market in general, or whether the referendum result will significantly hamper larger, more international transaction processes.

Delayed reaction
Another caveat that should be taken into consideration is that a number of deals announced post-referendum will actually have been negotiated and in some cases inked prior to 23 June. That said, announcements of deals done at the lower-end of the market have been holding steady in the first days of August, traditionally a quieter period for deal-doing. The ever-active LDC notably invested £37.5m to support the £105m management buyout of ByBox, a British supply chain logistics company. Meanwhile, ECI Partners and Livingbridge sold their stakes in corporate travel business Reed & Mackay to Inflexion Private Equity, generating a 3.4x return on investment.

unquote" previously reported on the string of acquisitions of UK businesses by international buyers in the wake of the referendum, which could suggest that the devaluation of the pound was a key driver, but could also be a simple correlation. The same caution should be exercised when assessing these preliminary findings - monitoring dealflow across all value segments from September onwards will be a more telling bellwether of the market's health in a post-referendum landscape.

In the meantime, here is a selection of significant transactions announced in July and August

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• UK / Ireland
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• Unquote Data