UK dealflow suffers sharp drop post-Brexit

Greg Gille
24 November 2016

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Despite showing initial resilience in the immediate aftermath of the June referendum, UK private equity activity has experienced significant slowdown in recent weeks, according to unquoteт data. Greg Gille reports

In a research piece published in August, unquote" found that UK activity figures for July would suggest local private equity houses were not deterred by the result of the Brexit referendum and kept to business as usual. We however raised significant caveats at the time, around both a potentially delayed impact on activity figures and a conspicuous lack of larger transactions in the UK market.

Judging by dealflow recorded between July and November, compared with the equivalent period last year, the UK market's resilience indeed proved remarkably short-lived: according to unquote" data, the UK has been home to 134 transactions between 1 July and the time of publication, compared with 215 in 2015. Furthermore, the aggregate value of these deals was cut by more than 50%, from £11.9bn last year to £5.4bn.

The growth and venture capital markets have been hit the hardest volume-wise, with the number of transactions being roughly halved to 76 deals since July this year, from 153 in the corresponding period last year. This would appear to suggest that smaller UK businesses and their financial backers have been much more bearish with regard to committing capital to growth projects in the face of significant uncertainty.

Mid-cap blues
But while buyout activity seems to have maintained a more even keel (only dropping by four transactions on aggregate), signs of caution are equally evident: the average deal value was slashed significantly from £159m between July-November 2015 to just £79m since July 2016. The lack of larger transactions was not just on display at the very top end of the market either – unquote" recorded just 15 UK buyouts valued at more than £100m EV in the past five months, against 24 over the same period last year.

Cinven and CVC's acquisition of UK credit card business NewDay from investment firm Värde Partners in October, understood to be worth in the region of £1bn, has been the only UK buyout valued at more than £500m since July. Between July and November 2015, unquote" had recorded eight such transactions in the UK.

Britain's European neighbours France and Germany do not appear to have seen similar drops in deal-doing at the upper end of the market: between them, the two countries have been home to 10 buyouts valued in excess of €500m since July this year, for an aggregate value of €10.8bn.

UK GPs will find a silver lining in the current exit market, although there again activity has been much more subdued since the June referendum (unquote" has recorded 56 exits since then, against 96 over the comparable period last year). Sizable transactions have been more plentiful on the sell-side, including the recent sales of Scottish Equity Partners-backed Skyscanner to Ctrip for £1.4bn and Bridgepoint's sale of Oasis Healthcare to Bupa for £835m.

Notably, US buyers have taken advantage of the diminished sterling to close out deals in the UK. Examples include CVC and a consortium of other vendors selling Formula One Group to US corporate Liberty Media in a deal giving the company an enterprise value of $8bn, as well as the £921m trade sale of Odeon & UCI Cinemas Group to listed US trade buyer AMC Theatres.