UK toppled as Europe’s biggest private equity market

Deal value dropped by third to €21.4bn as Netherlands overtakes Britain

The UK has lost its crown as Europe's biggest private equity market by deal value for the first time since 2011, as buyout executives have postponed big investments as they await greater clarity surrounding Brexit.

Deal value in the UK, which dropped by a third to €21.4 billion across 187 deals in the year to December 7th, was exceeded by a total value of €23.5 billion in the Netherlands, according to a new study by the Centre for Management Buyout Research at the Imperial College Business School.

The UK had more than three times the deal volume of the Netherlands, the researchers said.

But of the top 10 largest European buyouts this year, just one – Silver Lake's £2.2 billion acquisition of internet property search company Zoopla – was in the UK.

"The UK has been the pillar of deal flow but people are favouring Europe for large transactions," said Callum Bell, head of corporate and acquisition finance at Investec, which sponsored the research along with private equity group Equistone.

He pointed to Washington-based Carlyle’s acquisition of Akzo’s speciality chemicals unit and rival KKR’s purchase of Unilever’s spreads business – both in the Netherlands – as a sign that giant funds were looking beyond the UK.

Other European countries have also benefited from inbound buyout activity, including France that saw a 35 per cent rise in value to €20.1 billion, from a total of 114 deals, the research found.

Lack of clarity

The findings come at a time when private equity executives are increasingly worrying about a lack of clarity around Brexit.

Mr Bell said he expected global funds to be even more cautious about pursuing deals in the UK during the first half of next year.

He said buyout funds were in wait-and-see mode. “They believe there are better opportunities tomorrow than today.”

The European head of a large private equity group in Europe said he would expect the dynamics to change once “there is clarity one way or another on Brexit”.

‘Selling at low prices’

He said: “People hate selling at low prices unless they have to. With all the uncertainty in the UK, most sellers especially in consumer led transactions won’t sell and will wait until things settle down as buyers require a discount for the uncertainty risk.”

The survey also revealed the value of exits this year came at €93 billion, below the total value of new investments at €100.7bn for the first time in almost a decade.

Separately, private equity-backed initial public offerings fell by half in terms of value to €7.5 billion in 2018 as investors were spooked by volatile public markets, the research showed.

The UK was not the only market that experienced a decline. In Germany deal values dropped from €18.7 billion last year to €7.1 billion in 2018 due largely to a lack of “jumbo” deals, the researchers said. – Copyright The Financial Times Limited 2018