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UK Private Equity Deal Value Increased Substantially QoQ in Q2 2023, Deal Count Increased for 4th Straight Quarter – Report

UK Private Equity Deal Value Signals Potential Recovery in Q2 2023

According to a recent update from Pitchbook, UK private equity (PE) deal value in Q2 2023 has seen a 13.2% quarter-over-quarter (QoQ) increase, indicating the start of a potential recovery in UK dealmaking. The estimated deal count also rose for the fourth consecutive quarter.

PE sponsors have approached dealmaking with caution due to tightening monetary policy, resulting in smaller deals. Deals ranging from £100 million to £500 million account for over 60% of deals year-to-date (YTD). Take-privates and carveouts have remained prominent due to market timing and structural market issues.

In Q2, the financial services sector reported a record £10.0 billion in deal value, demonstrating that the UK’s financial sector is still open for dealmaking.

UK PE exit value has been steadily increasing for four quarters, with five mega-exits exceeding £1 billion in YTD. This has led to a 14.2% year-to-date increase in the median exit value from 2022.

Corporate acquisitions have been the most common exit route, accounting for 73.0% of exit value in 2023. Leveraged buyouts (LBOs) have become costlier due to rising interest rates, and the initial public offering (IPO) market has been muted. Excluding the five mega-exits, exits are lower than in previous years as sponsors hold on to their assets for longer.

Pitchbook also revealed that UK PE fundraising is on track for a record year, with the potential to finish 60% higher than in 2022 if the pace set in the first half of 2023 continues. H1 2023 saw the closure of 22 funds, raising over £30 billion, which is almost equivalent to the total raised in 2020 and 2021.

The record fundraising is primarily due to the closure of three large funds from experienced buyout managers, including Permira, KKR, and Oakley. These managers are currently the only industry players able to secure funding in the current climate.

However, there are concerns emerging within the UK PE market. Middle-market funds are experiencing one of the worst years in the past decade, and the median time to close funds is increasing.

The UK government’s injection of £75 billion into venture capital (VC) through pension funds could have a meaningful and timely impact, although its exact effect remains uncertain. Chancellor Jeremy Hunt announced a plan in July 2023 to allocate at least 5% of assets from the nine largest UK pension funds for investment in private startups by 2030. Currently, the percentage of commitments from defined-contribution (DC) funds is less than 1%.

The government’s goal is for private DC schemes in the UK to commit up to £50 billion by 2030, equivalent to 10% of the existing local government pension scheme allocations. Pitchbook suggests that even a £50 billion investment over several years until 2030 could significantly support investment in the region, especially considering the lower valuations seen in 2023, where VC deal value reached £29.0 billion.

Overall, the Q2 2023 update indicates a potential recovery in UK dealmaking, driven by increased deal value, steady exit value growth, and record PE fundraising. The government’s efforts to stimulate investment through pension funds could further support the industry’s growth and foster opportunities for private startups.

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