According to new research, UK private equity investment was down by a fifth during the first half of 2024, but is forecast to recover amid a more stable economic and political environment.
New data from KPMG found that private equity activity was down 20 per cent during the first half of the year, falling to just 656 deals. While deal value spiked during the second quarter, challenging macroeconomic conditions continued to impact private equity investment.
Mid-market deals were less heavily affected, registering an 11 per cent drop to 321 deals during H1, which remained 25 per cent higher than pre-pandemic levels seen during the first half of 2019.
Inbound activity from overseas buyers continued to be a major deal driver during the first six months of the year, with international buyers accounting for 42 per cent of all M&A activity and almost half of these buyers being American.
KPMG’s data also demonstrated the persisting prominence of bolt-on acquisitions – deals in which the buyer is a private equity platform business – which represented approximately 60 per cent of private equity-related deals. It was noted that the popularity of such deals appears to have increased amid ongoing high debt costs.
Despite the decline in activity during the first half of the year, there are positive signs for a recovery, with the UK economy having become more settled and the general election having delivered a new government.
KPMG UK head of private equity within corporate finance Alex Hartley stated that the firm was optimistic that “with greater economic and political stability, there are strong fundamentals for the M&A market to return to healthier levels of activity”.
Hartley cautioned that, while private equity firms and lenders were both returning to the market and looking to do deals, “he quality threshold for doing deals remains high.”
But, he continued: “Looking ahead to the remainder of 2024, after a prolonged period of uncertainty, investors will now be looking at the UK as a more stable environment for investing into new businesses and realising portfolio assets.”
“The focus on deploying capital is here to stay, as many private equity firms are sat on significant amounts of dry powder. Ultimately, the foundations needed for dealmaking have significantly improved over the last few months, and we expect activity levels will continue to rise in the second half of 2024.”
Hartley also stated that KPMG’s own pipeline was strong heading into the summer, with greater appetite for deals, especially in the financial services, tech, media and telecoms (TMT) and industrials sectors, with growing interest in consumer businesses as well amid improving consumer confidence.
Recent research has found that growing uncertainty and regulation mean that due diligence is now taking significantly longer than a decade ago
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