CMBOR reports northern small-cap private equity deal values on the rise

According to research by Centre for Management Buyout Research (CMBOR), the first half of 2019 has already seen the value of small-end private equity deals in the North of England overtake that of 2018.

The latest figures from the CMBOR, sponsored by Equistone Partners Europe and Investec Corporate and Investment Banking, show that small cap (less than £10m) Northern deal values totalled £51m in the first half of 2019, compared to £40m in the whole of 2018. In total, £156m has been invested throughout the North of England in H1 2019.

Across transactions of all sizes, the sector that secured the most private equity investment across the North in the first half of this year was business and support services, with deals worth £75m. The Northern healthcare and retail markets were next highest at £44m and £18m of investment respectively.

Key transactions seen in the region in the last six months include the sale of dermatology company sk:n which was acquired by private equity company TriSpan in February, in a deal worth £35m. Lucion Services, which specialises in risk and asbestos management, also underwent a Palatine Private Equity-backed management buyout, in May.

Across Europe, the private equity market in the first half of 2019 has fallen short of recent years’ outstanding activity levels, primarily due to a Brexit chill. In H1 2019, the number of private equity-backed acquisitions in Europe has dropped to 275 with a total value of €38.8bn, compared with 419 at a total value of €54.4bn in the same period last year.

In the UK specifically, deal values are also recorded to have fallen year-on-year from €11.6bn (£10.1bn) to €6.9bn (£6.0bn). Only four of the 40 biggest buyouts across Europe in H1 2019 took place in what has historically been the continent’s largest private equity market.

Sebastien Leusch, Investment Director at Equistone Partners Europe’s Manchester office, said:

“These figures highlight the resilience of the small-cap market, with over 75 per cent of deals within the UK in H1 of 2019 valued at £10m or less. This underlines the role of private equity in supporting the growth of the next generation of British businesses and demonstrates the hesitancy we have seen when it comes to larger transactions.

“There remain opportunities to create value and generate strong returns across a range of sectors in the Northern market, with industries including technology and manufacturing.”

Christian Hess, Private Equity Client Group Head at Investec, commented:

“We saw that the EU referendum result had a cooling effect on buyout levels in 2016, only to be followed by two record years for the post-crisis period, firstly in the UK and then across Europe. It’s unsurprising that the formal departure date and subsequent delay have proved to be the next ‘crunch point’, prompting dealmakers to either push deals over the line late last year or hold off in the short term.

“None of this should obscure the sustained depth of the European private equity industry. A strong pipeline, ready supply of attractively priced equity and debt capital, high levels of pent-up demand and the long-term secular growth of the market are all highly encouraging signs.”