The Midlands’ private equity-backed buy-out market slowed significantly in the first half of 2020 as the COVID-19 pandemic pushed UK private equity deal volume to its lowest level since the global financial crisis.
There were six deals in the Midlands in the first six months of the year involving businesses headquartered in the region with a total value of £109m, compared to thirteen in the same period in 2019, with a total value of £256m. Of these six deals, five completed in the first quarter – before the pandemic hit the UK.
The figures are according to provisional half-year data from the Centre for Management Buy-Out Research (CMBOR) at Imperial College Business School, sponsored by Equistone Partners Europe and Investec Corporate and Investment Banking.
It was a similar picture across the rest of the country with approximately 80% of all UK deals taking place in the first quarter. Nonetheless, the UK retains its position as Europe’s largest market by value and volume with its total deals valued at £13bn.
Will Copeland, from the Birmingham office of Equistone Partners Europe, said that the Midlands’ half year figures belied the situation.
“Confidence was high coming into the year and continued up to early March. This was driven by a prolonged period of uncertainty in 2019 and an outlook which looked considerably more settled for 2020 following the election result.
“Several new investment opportunities that had been on hold in 2019 were either being prepared or had been launched. Corporate financiers’ pipelines were as healthy as they had been for some time and this was matched by the appetite of private equity investors and debt providers,” said Copeland.
“However, the period of market positivity was cut short in early March as private equity firms, debt providers and management teams all focussed together on supporting their companies.”
Copeland said that whilst there were several variables that made predicting the remainder of the year difficult, many businesses would be more resilient following the pandemic.
“It is incredibly challenging to predict the outlook for the year with the economic impact of the COVID-19 pandemic unlikely to be known until at least the final quarter of the year once government support falls away, and with the return of an EU trade deal as an important factor.
“However there are many businesses in the Midlands that will be better shaped following the crisis and there remains a significant amount of dry powder – it is probable that the industries which have proved to be more resilient such as food, technology and healthcare will attract considerable interest over the coming months,” said Copeland.
Christian Hess, Private Equity Client Group Head at Investec, said: “On the one hand, COVID-19 is – and will remain – an inhibitor for any deal maker in the short to medium term. On the other hand, the imbalance of supply and demand for Tier 1 assets is even more pronounced now than before.
“As a result, whilst it will take time for M&A volumes to return to previous highs, our prediction for the remainder of this year is to see more structured deals, deal mix shifting away from public-to-privates and secondary leveraged buy-outs in favour of primaries, and an even stronger pre-emptive buyer bid for Tier 1 assets inside or outside of a process.”