UK PE activity rebounds in H1 despite political turmoil

Kenny Wastell
07 July 2017

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The British buyout market has witnessed a significant year-on-year increase in activity in the first half of 2017, despite political uncertainty surrounding the economic impact of the country's vote to leave the European Union. Kenny Wastell reports

There were a total of 102 buyouts in the UK in H1 2017, according to unquote" data, equating to a 32% increase on the dealflow seen in the same period in 2016 and the highest H1 figure since 2012. More striking still, aggregate values have soared from £5.9bn in the six months leading up to the EU referendum to £11.4bn in the first half of this year; a year-on-year increase of 93%.

The figures indicate that investors have been increasingly confident of investing in the UK, despite many industry professionals witnessing a brief pause in activity in the immediate aftermath of the Brexit vote.

It would be fair to say that over the course of last summer, following the referendum, there was some head scratching and pause for thought" – Sebastian Chambers, CIL Management Consultants

"In the first six months of this year, our business is up around 15% compared to the same period in 2016," says Sebastian Chambers, managing partner of commercial due diligence provider CIL Management Consultants. "It would be fair to say that over the course of last summer, following the referendum, there was some head scratching and pause for thought. However, most of the deals that were put on hold did actually end up being completed. A large part of the reasoning behind that is that most business decision makers still feel we're relatively early in this upcycle."

Yet the UK has experienced uncharacteristically high levels of political upheaval in recent years, and June saw yet another electoral surprise. When the Conservative government called a snap election for 8 June it was riding high in the polls, with most forecasters giving them an advantage of more than 20% over the Labour party. Business leaders appeared confident that a government with a larger majority would be the result, providing for a more stable economy and boosting investor appetite. But on 9 June, when the votes had been counted, the Conservatives' lead over Labour had been whittled down to less than 3%, the party lost its majority in the House of Commons and the country was faced with a minority government.

As a result, it remains to be seen which policies the government will be able to push through parliament, with the resulting uncertainty typically viewed as being harmful to the private equity sector and the wider economy. At a time when Britain appeared to have been recovering from the shock of Brexit, another spanner has been thrown into the works. "This is a massively disappointing result that just adds to the uncertainty, which is no good for any of us," Elysian Capital CEO told unquote" in the aftermath of the election. "All Brexit options are back on the table, with exit without any deal at all being probably the favourite. With no-one able to take decisions and no hope of getting a compromise deal through parliament and past the strong Eurosceptics on the right, people who voted Labour or Liberal Democrat to frustrate a large May majority and her vision of Brexit have scored a massive own goal, which they will come to regret."

New normal
Yet CIL's Chambers believes the fallout from the general election might not be as dramatic as many are anticipating. In particular, he concedes that the experiences post-referendum might have made investors more resilient when faced with unexpected political results. Furthermore, he argues that the firm's pipeline and order book offers encouraging signs of activity through to the end of 2017. "We're not seeing a huge impact from the Brexit vote or from the hung parliament," he says. "It does have to be pointed out that in the UK we have an unusual political system that tends to deliver these strong majority governments, but most other countries don't experience that. So in a way we'll just be progressing in much the same way as other countries do over the coming years."

Indeed, as the aforementioned figures show, there has been no immediate negative impact of the Brexit vote on the UK private equity space. However, with uncertainty becoming the new normal, investor nerves may begin setting in as March 2019 draws nearer and the country inches ever closer to the EU exit door.