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Brexit fails to cool UK lower mid-market – Exclusive

The UK lower mid-market has posted its best six-month period since 2008, despite the uncertainty surrounding the UK’s decision to leave the EU.

Brexit has not cooled investor appetite for the UK lower mid-market, which has seen its busiest six months since 2008, according to new research from Lyceum Capital and Cass Business School.

According to their UK Growth Buyout Dashboard, which analyses new investments in majority deals backed by private equity firms with an enterprise value of between £10 million (€11 million; $12 million) and £100 million, 26 deals were completed in the third quarter with a combined value of £983 million.

Coupled with the 26 deals worth £1.02 billion completed in Q2, 52 deals have been completed in the last six months, worth a combined £2 billion, a record high since H1 2008.

“The data for this first full quarter post-referendum shows very encouraging signs that the impact of the referendum could be more muted than expected in the UK lower mid-market sector,” said Scott Moeller, director of the M&A research centre at Cass Business School.

“Given that the asset class has lower exposure to foreign revenues than its peers further up the size scale and also the recent weakness of sterling, we see this segment poised to continue to be strong beyond this quarter as well.”

The year saw the slowest first quarter since 2013, with just 16 transactions completing worth a combined £721 million.

Post-Brexit, the plummeting sterling has helped make the UK’s SME landscape an attractive hunting ground for foreign investment. The research found that 19 percent of investments made in Q3 were by international private equity firms, while 50 percent of all exits in that size bracket during the quarter were to foreign buyers.

“With sterling’s recent drop and the UK lower mid-market being the most active and liquid buy-out market in Europe, it is no surprise that international buyers have actively taken advantage of these new opportunities – both of Lyceum’s exits in the quarter were to international strategic buyers,” Andrew Aylwin, a partner at Lyceum Capital, said.

Deal volumes in the TMT sector hit a five-year peak in the quarter, accounting for 30 percent of total deals with an aggregate value of £368 million.