KPMG’s study of UK transactions involving private equity investors over H1 2019 indicates that activity in the region has fallen over the past year

Private equity investment in the North West fell in the first half of 2019 despite investors remaining “incredibly hungry’ for the right deals, new data shows.

KPMG’s study of UK transactions involving private equity investors over H1 2019 indicates that activity in the region has fallen over the past year from 32 deals in the first six months of 2018 to 26 in H1 2019.

However, deal values increased from £2.15bn to £2.38bn over the same period, the highest level recorded since the study began in 2014. This suggests, says KPMG, that for the right opportunities, investors are still willing to deploy significant funds.

Economic uncertainty

Jonathan Boyers, head of KPMG’s corporate finance team in the North said heightened economic and geopolitical uncertainty was deterring vendors from bringing assets to market, stymieing overall activity – but that investors were still keen to make deals.

He explained: “The truth is that private equity remain incredibly hungry to invest, as evidenced by the fact that overall deal values, particularly in the middle market where Northern investors are predominantly operating, remain strong, and deal multiples are at record highs.

“However, investors are currently eschewing those higher-risk transactions that they may have been willing to undertake a couple of years ago, when the market was more steady and they could price risk into both the deal and its structure.

“Instead, they are focusing on those higher quality opportunities that are perhaps considered safer bets in the short term.”

Dearth of assets

The analysis also reveals significant amount of capital in the market, coupled with a dearth of quality assets for sale, has prompted private equity bidders to compete harder and harder in auctions over the first six months of the year.

It has also prompted other changes in approach, with investors engaging due diligence providers early, together with accepting greater reliance on vendor due diligence. 

Mr Boyers added: “Today’s highly competitive deal environment has put a much stronger spotlight on PE firms themselves. We are increasingly seeing funds do more to visibly differentiate their value propositions, while articulating to management teams how and why they are the best PE fund to work with.

“Those funds that demonstrably understand a management team’s goals and can articulate how they can contribute to these goals – for example, through relationships, resource, geographic reach or in-house strategic consultants – are far more likely to be successful in their bids than other investors with a less differentiated proposition.”