Blackstone’s Gray: UK is the most compelling developed market

Brexit-related uncertainty has made valuations for UK mid-market companies more attractive, president and COO Jonathan Gray told Private Equity International.

The largest private equity firm in the world is getting excited about opportunities in post-Brexit Britain.

Jonathan Gray, Blackstone
Gray: UK high on the list of places to invest

“I think the UK is probably the most compelling developed market in the world today,” Blackstone president and chief operating officer Jonathan Gray told Private Equity International in an interview in London. “And I say that because although Brexit has resulted in lower growth, between the currency movement and the stock market, you’ve seen pretty dramatic underperformance from a valuation standpoint.”

Multiples in the UK have compressed – particularly for mid-market companies – and there has been less interest in the country’s real estate market as well, he added.

The S&P 500 and Dow Jones Industrial Average indices have gained about 60 percent between the 2016 EU referendum and mid-February 2020, while the UK’s FTSE 100 has only grown about 12 percent.

Although the uncertainty around the UK’s relationship with Europe remains a cause of concern in the long-term, Gray said Blackstone is “continuing to press on” with UK deals.

We did through the sort of uncertainty period, and even looking at things today,” he said. “I would put actually the UK high on the list of places to invest geographically today as it relates to continental Europe.”

Blackstone made two investments in the UK last year. In June, the firm teamed up with Canada Pension Plan Investment Board and KIRKBI A/S, the private investment company of Lego’s Kirk Kristiansen family for the £4.77 billion ($6.2 billion; €5.7 billion) takeover of theme-park owner Merlin Entertainments. It also bought the European distribution unit of Irish materials distribution platform CRH ED for €1.7 billion the following month.

US buyout funds’ acquisitions of UK companies climbed 53 percent by deal value last year to £14.2 billion, from £9.3 billion in 2018, according to research from international law firm Mayer Brown.

The law firm noted in the report that the “relatively depressed valuations of UK companies versus their European peers” offered good value for US-based PE funds and expected this to continue as negotiations over the UK’s trade deal with the EU rumbles on.

Gray noted, however, that Blackstone has seen the greatest enthusiasm for the US among its LPs, due to that market’s economic growth, liquidity and transparency.

He added: “I’d probably put a little more interest on a relative basis on Asia, because of the underlying growth. Obviously the [corona]virus in the short term [has] caused some concern, but I think there’s a view that places like China and India and South-East Asia will grow faster.

“I think Europe is a harder story for investors. And again, I think that’s often reflected in asset prices because they’re concerned about what’s going to happen to the European Union over time; what are the real rates of growth? And so, I would say … the investment consensus is a little more negative.”

– Adam Le contributed to this report.