Research from KPMG showed that in the first half of 2021, the United Kingdom saw the highest level of Private Equity (P.E.) investment since the record-setting 2017. In the first half-year, the KPMG data shows that a total of 785 deals worth a total of £73.7 billion were completed after factors like the vaccine rollout gained steam, and the loosening of travel restrictions have allowed for increased optimism. One might think the bubble would burst; however, since the publication of KPMG’s report, the number of deals being done taking British firms private has not slowed, and now according to Refinitiv, who has a different system of counting, there have been over 400 U.K. deals so far worth over $50 billion USD. This is the highest number since Refinitiv first collected data in 1996. For comparison, the next highest year for Rafinitiv was 2018, with 297 deals done through September and 402 deals done for the year; we are only at the beginning of October.
The first reason for the continued expectation of deals globally is untapped capital. According to Pitchbook, a Private Equity researcher, firms are sitting on about $1.3 trillion in unallocated capital. This money burning a hole in P.E. pockets is a huge incentive. While borrowing interest rates stay low, firms like HULT Private Capital, a London-based P.E. firm, will be on the hunt for the next takeover prospect.
Second, for the U.K. specifically, firms are undervalued. According to data from Bloomberg, the simple value measure, price to earnings ratio, for the companies of the London Stock Exchange in the FTSE all share P.E. ratio is at 14.700 while the U.S.’s S&P500 is more than double at 33.48. This difference is due to an undervalued British pound that has not quite recovered since Brexit and a stock market that has lagged behind other global markets. In the past five years, the FTSE climbed only 26%, while the S&P 500 has given its investors 125% return in the same timeframe. Besides the lagging pound, the underperformance is that there are few tech stocks in the FTSE compared to the S&P, and for the past few decades, tech has pushed the entire market higher. This lack of tech stocks in the FTSE has hindered stocks that should have risen more. Therefore they are undervalued when looking at their assets held and prime for takeover.
This optimism among business titans is continuing to rise. With several high-value deals continuing, making the market unstoppable through September, no one can guess how high the record will be for 2021. I.W. Captial wishes to try to find an accurate list of viable companies and therefore commissioned countrywide research to determine which sectors the P.E. investors will continue to back.
The resulting data from I.W. indicates that the green and sustainable sectors will likely be the main beneficiaries of significant investment backing for the next year. Beyond green, other firms that are in more “scientific fields,” (biotech, pharma, online retail, and fintech) that have benefitted from “increased exposure for the last year and a half” (during the pandemic) are also primed to benefit. Finally, the I.W. research suggests that the creative industries and hospitality, which have been the worst affected by the pandemic’s impact, are on the list of potential U.K. investments. HULT Private Capital is on the inside track for finding these valuable acquisition targets.
I.W. Capital’s DATA RESULTS
- In the next year, 45% of U.K. investors are looking to back sustainable and green companies.
- In the next year, 36% of U.K. investors are looking to purchase stocks and shares.
- In the next year, 34% of U.K. investors are looking to back the Biotech, Pharma, and Medtech industries.
- In the next year, 29% of U.K. investors are looking to back online retailers.
- In the next year, 26% of U.K. investors are looking to back fintech.
- In the next year, 18% of U.K. investors are looking to back creative industries.
- In the next year, 16% of U.K. investors are looking to back the hospitality sector.
I.W. Capital’s CEO, Luke Davis, said about the research, “demand exists…..around climate change, green and sustainable companies topping the list of investor demand……also significant confidence in long-suffering sectors with periods of lockdown (with) nearly a 1/5th of investors looking to back the hospitality sector or creative industries. “
John Hudson of HULT Private Capital says that “investor confidence is a good barometer of business sentiment and the economy. Private equity is all in for U.K. firms. Small private growth companies are even seeing investment. Growth is what investors are looking for to support their goals after 2020’s hard times.”
Hudson continued, “SME’s and entrepreneurs are key for U.K. growth, making up 99.9% of private-sector businesses and employing 60% of the U.K. workforce. The investment community backing these is hugely important for optimism and activity.”
Private equity is not only happening in the U.K. but is a global trend; public companies may not be the best form for business. According to a Gbenga Ibikunle, a University of Edinburgh Business School professor, in 2019, 2,026 businesses were listed in the U.K., down from 2,913 in 2006, and according to Prof. Ibikunle, a steeper drop was seen in the U.S., with private equity playing a critical role. The Professor said that” investors are seeking significant returns and perhaps because of a U.K.-U.S. cultural fit, a lot of P.E. money is coming from the U.S. and finding homes in the U.K.”
HULT Private Capital‘s Hudson also said, “Our international investors like the fact that we are local. With the influx of international P.E. funds, more scrutiny and even push back has been seen from the Labour Party. Local P.E. firms like HULT can circumvent this.”
The P.E. deal record year is a certainty, but it is still not determined how high it will go. HULT Private Capital and the other P.E. firms vying for the next takeover targets will benefit, but only time will reveal the final tally.
Tel: +44 208 123 5164
Address: 1 Cornhill, City of London,England, EC3V 3ND