Private Equity activity in the North of England has declined, according to new figures released today.
KPMG analysed mid-market private investment in the region and found that investor caution has impacted on deals – however, there is some optimism.
Nationally mid-market private equity deals were worth £46bn, down 12%. While in the North, there were 149 mid-market private equity deals in 2022, with a total value of £9.3bn. These numbers fell 19.9% and 7.9% respectively.
When compared to pre-pandemic levels, both the number of deals and their value has increased nationally and regionally.
The North of England accounted for 22% of all transactions in the UK market, with the majority in the North West.
“Considering all the factors at play in the economy, the decline in volumes and values we saw across the North wasn’t quite as dramatic as many expected,” said Rick Stark, Head of Private Equity at KPMG in the North.
“Furthermore, it is encouraging that the Northern market has retained a healthy share of activity that reflects the continued strength of the investment community here and the quality stable of ambitious, investable and attractive businesses that call the North home. With deal volumes and values comparing well in the North West and Yorkshire against pre-pandemic performance, there is a hint of optimism emerging that 2023 may be more stable and see some growth.”
By sector Business Services, and Technology, Media and Telecommunications (TMT) were the most active for Mergers & Acquisitions activity. Combined they accounted for 63% of all mid-market private equity deals in 2022.
“The private equity mid-market saw a record year of activity in 2021 so it isn’t that surprising that deal volumes and values have cooled a little as the market normalises. Many across the Northern market saw buoyant activity at the start of last year but strong economic and geopolitical headwinds pumped the brakes a little on that momentum,” explained Christian Mayo, Head of Corporate Finance in the North at KPMG.
“Investors and business leaders have been monitoring closely how those conditions unfold and what the impact of high inflation, interest rates and the wider cost-of-living crisis might be. Such uncertainty breeds caution and inevitably put some mandates on ice.”
North West
11.2% of UK private equity mid-market transactions took place in the region, making it the most active market outside of the capital.
In 2022, there were 76 deals (down 23.2% in 2021).
It remains the most valuable market outside of London.
Compared to pre-pandemic levels, the North West’s mid-market activity volume and values were both up seven per cent.
Yorkshire & Humber
The region accounted for 8.4% of mid-market transactions. This was up from 7.7%.
The value also increased to £3.7bn (2021: £3.6bn).
The volume of deals did fall from 65 to 57.
Compared to pre-pandemic levels, both volume and value are up (16.3% and 14.6% respectively).
North East
There were 16 mid-market private equity transactions in the North East over the period. That fell from 22 in 2021.
The value also dropped from £1.1bn to £0.8bn.
It accounted for 2.4% of the overall market – down from 2.6% last year.
Compared to pre-pandemic levels, deal volumes and values were also down (33.3% and 42.9% respectively).
The outlook
“The future is always difficult to predict, however, there is a sense that expectations have adjusted and the situation is more stable than it was for most of 2022,” said Mayo.
“Stability is key for investor confidence and decision-making, as it allows for factors like the availability and price of debt, consumer spending expectations or high energy prices to be priced into a deal. Access to funding is also crucial, and with the impact of economic headwinds weighing on cash generation and profitability, businesses looking to debt-fund transaction are likely to face increased scrutiny from lenders. Unlike the 2008 financial crisis, however, lenders and equity providers do have significant capital to deploy, but providers of capital will be selective, with more resilient businesses in sectors where there is a strategic imperative for change likely to be the beneficiaries.
Looking at the situation in the North, Stark added:
“We may also see a boost in mid-market transaction levels as questions regarding the capital gains tax regime loom. Similar uncertainty over the last few years has weighed on private business owners, and owners who are mindful of noise around potential increases in CGT rates may be tempted to push the button and get a deal done sooner rather than later.
“With the general consensus now being that any recessionary environment will be less severe than previously assumed, the desire for growth and investment using M&A will likely be on the agenda for many. Private Equity firms still have considerable amounts of dry powder to deploy and at present there’s more money than there are deals on the table. Demand for lower-risk opportunities, such as bolt-ons and minority deals, and for businesses in robust sectors, will continue. It may be a tough road ahead for the country and for businesses, but those who can weather the storm by remaining agile, focused and as prepared as possible, will emerge well-placed to take advantage of future opportunities.”
