British SMEs Driving Private Equity Activity in the UK


September 2, 2015


The Greek debt crisis and the economic slowdown and stock market turmoil in China have hit businesses hard across the globe and the UK has been no different. But while the larger UK businesses have been at the forefront of the troubles, investor confidence towards the small and medium sized firms in the country remains strong.


Findings of the Latest Study


The latest statistics gathered by Cass Business School and the private equity firm Lyceum Capital show private equity investments into British SMEs are driving the overall PE activity in the country. In fact, private equity investment in SMEs managed to reach a two-year high during the first six months of 2015.


The total value of investments stood at £1.4 billion during the first half. This is the highest recorded investment since 2013.


The Dashboard looks at investments with enterprise values of £10 million to £100 million. While the Dashboard analysis shows overall investment numbers remained at similar levels to the first half of 2014, the amount of small deals and their value increased. Investments worth less than £50 million increased by 16%, from 24 deals made during the first half of 2014 to 27 deals signed during the same period this year. These small investment deals also accounted for 70% of all the deals recorded during this period.


Andrew Aylwin, a partner at Lyceum Capital, told Growth Business, “These figures show this (SMEs being a strong part of private equity-led M&A activity) trend is accelerating, most notably at the smaller end of the market where private equity often has a greater opportunity to drive transformational growth, value creation and investor returns.”


Strength in the UK Mid-Market


According to the analysis, the rest of the year will likely continue to be strong in terms of private equity activity. Scott Moeller, professor in the Practice of Finance and Cass Business School, said, “lower mid-market activity has been remarkably consistent in the past two years, with less volatility than other equity and financial markets.”


The opportunities for private equity investors continue to be strong. The data also showed strength in both realised investments and exits. The mood for investments in SMEs is also growing. According to analysis by private equity group Radius Equity, UK’s recent inheritance tax changes could help boost support of further investment in SMEs.


Growing in Importance


Private equity’s role in driving growth in British SMEs is becoming increasingly important. The financial crash caused funding issues for many companies and it looks private equity firms are helping to bridge this cap.


While private equity funding has not always had a good name among British SMEs, businesses are starting to see the benefits of this funding method. Minority investments, especially, are attractive option for many British SMEs. Charlie Johnstone, partner at ECI Partners, told Real Business in February the interest towards minority investments is down to them providing “a more customised approach to finance that can be tailored to suit the nature, stage and management of the business”.


If you want to find mid-market companies in the UK, check out the DealMarket platform.

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