UK sees advisory boom amid PE market maturation

Katharine Hidalgo
18 March 2020

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Many advisers have shifted their strategy further towards private equity, and grown their existing PE-focused teams, in the past five years. Katharine Hidalgo reports

The UK & Ireland has seen an increase in the number of corporate finance firms participating in private equity deals, rising to more than 160 over the last five years, up from around 120 between 2010 and 2015, according to Unquote Data. Placement agents also saw a large increase from 49 to 83. The legal and financial due diligence markets saw more modest increases of 4% and 14% respectively.

Many advisers have shifted their strategy further towards private equity, and grown their existing PE-focused teams. In 2019, Goldman Sachs announced its plan to dedicate an investment banking team to mid-market private equity, and, in February 2020, placement agent Rede Partners announced a graduate scheme to continue its expansion. Ian Downing, an investor at BGF, says: "The advisory market is certainly not saturated. There's still room for growth."

Most market participants put the shift towards PE down to the development of the private equity industry over the past decade. Partner Karl Adam says of his firm: "At Monument Group, we've grown gradually but steadily as the work grows and as the LP universe grows as well."

This is certainly true on the GP side too. Baird managing director Vinay Ghai says: "Ten years ago, you used to be able to know 15 private equity firms and that would represent 80% of the market. That's completely changed now; the number of players is significantly higher than that."

Growth, particularly in corporate finance, may be driven by the shift away from advisory work on the part of the Big Four – PwC, KPMG, EY and Deloitte. The collapse of construction company Carillion in 2017 triggered the independent review of the Financial Reporting Council and an investigation by the Competition and Markets Authority into the UK's audit market. As a result of the probe, KPMG, Carillion's auditor, announced it would no longer provide consultancy work for its audit clients.

From 2015 to 2020, the Big Four advised on 15% of deals in the UK & Ireland as corporate finance advisers, compared to 47% of deals as financial due diligence advisers, according to Unquote Data. This could explain more muted growth in the number of financial due diligence providers.

London calling
The UK hosts a disproportionate number of advisers given its share of total European PE activity. The region continues to attract new entrants, such as US-based firms expanding into Europe. Half of Europe's top 10 most active corporate finance firms (by number of deals advised upon) are headquartered outside of Europe, but have their European base in the UK. Three others are headquartered in London.

Ghai says: "If you're going to pick a region to set up an office in Europe, London is still the first port of call. People are reluctant to make a first move into another region as a starting point."

Pan-European firms often base operations in London, too. Monument's Karl Adam has investor coverage responsibility for German-speaking Europe and Denmark, and certain UK-based investors, and is based in Monument's London office. He says: "Whether they tend to be focused on continental Europe or not, many of our competitors are based in London. There are a lot of GPs and LPs here. Having everyone in one place helps with office culture and connectivity also. London is such a centre of gravity, so whether clients are based here or not, they will travel here often."

All of Europe's 10 most active placement agents, by number of funds advised upon from 2015 to 2020, were either headquartered in London or had their European headquarters in the city.

And Brexit has done little to curb that enthusiasm. Gustavo Diquez, managing partner for Umbra Capital Partners – a new entrant into the corporate finance arena with a mandate to invest – based the firm in London. "London is the place to be, it attracts talent and capital from everywhere," he says. "We also remain bullish about private UK assets."