US private equity firms step in where UK PE houses fear to tread

By contrast, the number of transactions by US and international PE houses remained steady in H1, helping to raise the US share of the market to 25%, up from 20% last year, while the rest of the world accounted for 17%, up from 14% in H1 2019.

The drop in deal numbers became more pronounced in Q2 as the country entered lockdown, with the overall volume of PE transactions plunging by 53% year-on-year.

While deal activity occurred across many different sectors, IT, media, financial services and medical communications companies attracted the most interest from private equity investors in the first half of the year.

Commenting on the findings, Jamie Austin, BDO’s National Head of Private Equity said: “COVID-19 has had a dramatic and chilling effect on the M&A market with many UK PE firms adopting a cautious wait-and-see approach to new investments. By contrast, PE firms from the US and the rest of the world have been noticeably more bullish, growing their share of the market. Time will tell whether this appetite to invest through the pandemic will turn out to be a case of fortune favouring the brave.

“It is difficult to anticipate how the market will evolve but it will undoubtedly remain subdued at least in the short term. In the interim, PE-backed deal activity is likely to be more focused on bolt-on acquisitions and minority deals. That said, many PE houses continue to hold lots of dry powder and will be under pressure from investors to deploy funds as we emerge more fully from lockdown and the economy begins to recover. With valuations being challenged in some sectors where it is difficult to forecast over the short term, there may be good opportunities for private equity to get involved, bringing both financial muscle and expertise.

“For the growth investors, we are already seeing greater concentration of interest in both tech and life sciences, especially services to pharmaceuticals, which are either proving to be resilient or even benefitting from lockdown. We are expecting to see a busy Q4 for these sectors as many processes are chalked up to launch into what people are hoping will be a less turbulent market.”

Source: BDO