Highlights

  • Despite the nationwide lockdown for the duration of Q1 2021, UK deal activity has remained exceptionally active with transaction volumes in the region accounting for 36% of all deals across the European mid-market region[1]
  • We have experienced an uptick in deal activity across all sectors in the UK in comparison to Q4 of 2020 as investors have continued to deploy capital amongst an increasingly positive economic outlook, and it is apparent that the rate of change that pushed deal volumes to historically high levels pre-pandemic has now accelerated[2]
  • Transactions in the TMT and Business & Tech-Enabled Services sectors have again proven most prevalent (with each sector accounting for 32% of the UK’s total deal flow respectively[3]), thus signifying the continued shift of investors to Covid-resilient business models
  • In contrast to the high level of buyouts, private equity exit activity in the UK has been relatively slow for both Q1 2021 and for the latter stages of 2020[4]. This outcome is mostly attributed to sponsors delaying exit timetables to wait for more certainty before offloading cyclical assets. Instead, many sponsors in the meantime have opted to invest more in portfolio companies - via bolt-on M&A - and are seeking recapitalisations rather than full-on exits[5]
  • However, as lockdown eases and normality resumes across the UK, we believe sponsors will be inclined to realise their investments in cyclical assets in light of the anticipated uptick in economic activity. Coincidently, we also expect more advisors to pitch for sell-side mandates across the summer, and for this to be followed by a flurry of exit activity in the latter half of 2021
  • As exit activity in the UK mid-market has remained supressed for the last 6-12 months, there’s a build-up in sponsor demand for deal flow yet to be relieved in Q1 2021. This, coupled with fewer investment opportunities coming to market means sponsors are now coming under heightened pressure from LPs to deploy capital and keep up with their investment curves. This pent up demand for deals, combined with favourable debt conditions and significant market dry powder, has put upward pressure on valuations in the UK, as sponsors have been more willing to pay premium prices for assets of ‘sufficient’ quality[6]
  • Looking forward to the remainder of 2021, we believe that the outlook for UK private equity backed M&A activity is a positive one. The recent news flow on the nationwide uptake of vaccinations, the easing of lockdown, and further clarity on Brexit, will all contribute to optimism for UK investors. Though there will undoubtedly be challenges in 2021 - as the economic impact of tapering off programmes such as the government’s furlough scheme remains to be seen - any associated downturn will likely create the kind of market disruption on which private equity is well placed to capitalise [7]

Key deals [8]

Business & Tech-Enabled Services

  • H.I.G. Capital has agreed to acquire the restructuring unit of KPMG, a UK-based provider of insolvency, financial restructuring, and turnaround services, from KPMG, for a consideration of c.£400m
  • THI Investments agreed to acquire Oxford International Education Group, a UK-based provider of educational services, from Bowmark Capital, for an undisclosed consideration
  • TA Associates Management has agreed to acquire Fairstone Group, a UK-based company that provides wealth and investment management solutions, from Synova Capital, for an undisclosed consideration
  • WestBridge has agreed to acquire Channel 3 Consulting, a UK-based digital transformation company, for a consideration of £10m
  • Astorg Partners has agreed to acquire Third Bridge Group, a UK-based global research organisation, from IK Investment Partners, for an undisclosed consideration

Consumer, Leisure & Retail

  • Limerston Capital Partners has agreed to acquire Village Bakery, a UK-based bakery operator, for an undisclosed consideration
  • Inflexion has agreed to acquire Pangaea Laboratories, a UK-based beauty business that owns the Medik8 anti-ageing skincare brand, for an undisclosed consideration

Healthcare

Industrials Products & Services

  • Rutland Partners has agreed to acquire JSM Group, a UK-based provider of infrastructure services to the UK's digital communications and power sectors, for an undisclosed consideration
  • Ambienta Sgr has agreed to acquire Collingwood Lighting, a UK-based designer, manufacturer and distributor of LED luminaires for residential, landscape and commercial and light industrial applications, from Baird Capital Partners, for an undisclosed consideration
  • Arcline Investment Management has agreed to acquire ChargePoint Technology, a UK-based pharmaceutical manufacturer and bioprocessor, from LDC, for an undisclosed consideration
  • Cabot Square Capital has agreed to acquire Premier Modular, a UK-based manufacturer and supplier of modular building solutions, from Waco International, for an undisclosed consideration
  • THI Investments has agreed to acquire, WJ Group, a UK-based specialist road marking company, for an undisclosed consideration

TMT

  • BlackRock has agreed to acquire Aquila Heywood, a UK-based provider of pensions administration software and services, for an undisclosed consideration
  • Providence Equity has agreed to acquire Node4, a UK-based provider of hybrid managed cloud and integrated IT solutions, from Bowmark and LDC, for an undisclosed consideration.
  • Paine Schwartz Partners has agreed to acquire Kynetec, a UK-based agricultural and animal health market research, data and insight firm, for an undisclosed sum
  • Astorg has agreed to acquire Xceptor, a UK-based company that provides process automation software for financial institutions, from CBPE Capital. Astorg made a return of 10.8x the original investment and an IRR of 89%
  • LDC has agreed to acquire Sohonet, a UK-based provider of connectivity software for the media industry, from FPE Capital, for an undisclosed consideration
  • Montagu has agreed to acquire ITRS Group, a UK-based real-time monitoring and analytics software company, from TA Associates, for an undisclosed consideration
  • August Equity has agreed to acquire Business Systems, a UK-based cloud-enabled enterprise communications service provider, for an undisclosed consideration

2014 – 2021 YTD total deals in the United Kingdom, by sector[9]

 

Go back to our European Mid-Market Private Equity Round-Up: Q1 2021

 

References

[1] Q1 2021 European mid-market deal report, Mergermarket, 04 March 2021 (available on request)

[2] UK M&A appetite strong as companies reshape for post-pandemic future, EY, 3 March 2021

[3] Q1 2021 European mid-market deal report, Mergermarket, 04 March 2021 (available on request)

[4] European PE Breakdown 2020, Pitchbook

[5] European PE Breakdown 2020, Pitchbook

[6] UK PE market bounces back after Covid-19 hit, Private Equity Wire, 1 February 2021

[7] 2021 European Private Capital Outlook, PitchBook

[8] All UK deals sourced from: Q1 2021 European mid-market deal report, Mergermarket, 04 March 2021 (criteria available on request)

[9] UK graph sourced from: Q1 2021 European mid-market deal report, Mergermarket, 04 March 2021 (criteria available on request)