Exit routes open up for UK investors

The growing importance of the UK private equity market and an increasing number of exits from portfolio companies are highlighted in two surveys of the industry.

New figures from Nottingham University's Centre for Management Buyout Research (CMBOR) show the current high level of exits in the UK market, while the importance of private equity to the wider UK economy was demonstrated by the British Venture Capital Association's (BVCA) sixth economic impact survey.
UK private equity firms achieved £13.7 billion (€19.8 billion; $25 billion) worth of exits in the first three quarters of this year, according to research conducted by CMBOR for Barclays Private Equity and Deloitte. This was almost £5 billion more than the £8.8 billion total for the whole of 2003. Exits during the first nine months of this year included 63 secondary buyouts, as well as 21 flotations – 12 more than during the whole of 2002.
Mark Pacitti, private equity partner at Deloitte, suggested that funds were 'leaping on the exit opportunities provided by improved stock market conditions, the return of trade buyers and increased acceptance of secondary buy-outs.'
CMBOR's more detailed report looking at the long term exit environment, Exit, found the average time for which assets were held increased through the 1990s from 42 months to more than 70 months by the end of 2003 – longer than the typical target exit period of between 30 and 60 months. However, this average dropped during the first half of 2004 to just over 61 months, suggesting that the backlog of exits which have accumulated since the 2000 lull might be starting to clear.
However, Tom Lamb, managing director UK of Barclays Private Equity, said: 'There remains a surprisingly large number of un-exited mid-market and small deals within private equity portfolios. Private equity houses with a poor exit track record are going to find it increasingly difficult to attract funds in the future as investors are generally looking to reduce the number of manager relationships they have.”
The current strength of the private equity market is also a major driver of wider UK economic growth, according to the BVCA’s sixth economic impact survey. The survey estimates that private equity-backed companies employ 2.7 million people, or 18 percent of the UK's private sector workforce, and generate £187 billion of annual sales revenue and £29 billion in exports.
It also found that firms backed by private equity outperformed the market on job creation, exports, sales growth and investment. Employment in private equity backed firms rose by an average of 20 percent over the five years to 2004, compared with a rate of four percent among FTSE100 companies and a national growth rate of 0.6 percent. During the same period their sales rose by 23 percent a year, compared to ten percent among FTSE listed companies; while their export revenue grew by 20 percent a year, compared to a national rate of 3.3 percent.
The report also found that 77 percent of investee companies believe that, without private equity, their business would have either developed more slowly or never got off the ground. Forty-one percent suggested that private equity gave them access to more funding than would otherwise have been available.
John Mackie, CEO of the BVCA, said: “The story of the UK private equity and venture capital industry has been one of encouraging entrepreneurship and providing support to innovative businesses. This survey shows that the private equity industry is having a sustained and increasing effect on the UK economy.”