UK roundtable: Flight to quality

The UK is one of the world’s most established private equity markets, long a magnet for talent and capital. But given its stuttering domestic economy, thanks in no small part to the troubles of the neighbouring eurozone, are there still opportunities for private equity to make great returns? We gathered three of the UK industry’s leading lights in London in January to ask them about the outlook for 2013


Markus Golser is a senior partner at Graphite Capital. He has led and structured a variety of transactions since joining Graphite in 1997, including several in the retail and support services sectors. He also oversees Graphite’s portfolio and finance functions. He started his career as a management consultant with Bain & Company, where he worked in Paris and London.   

Sean Whelan is a managing director at ECI Partners, and a member of ECI’s Investment Committee. Based in London, Sean has overall responsibility for ECI’s exit strategy across the portfolio and post-investment added value. Sean’s past and current investments include ClarityBlue, Bounty, Language Line, MM group, WCI, Harmoni, CliniSys, XLN and Wireless Logic. He previously worked as a strategy consultant for Gemini Consulting and Bain & Company.

Mark Nicolson is a partner at SL Capital Partners where he is responsible for primary fund investments, secondaries and co-investments.  He also leads the firm’s coverage of the UK and German speaking markets.  Prior to joining SL Capital in 2007, Mark spent 7 years working as lead advisor in the Corporate Finance teams of Ernst & Young and KPMG, focusing principally on buyouts.  He is a member of the Institute of Chartered Accountants of Scotland and a Fellow of the Chartered Institute for Securities & Investment.

PEI: Do non-European investors regard the UK as a distinct proposition from the Eurozone? Or is it tainted by association?

Sean: I think it’s a northern Europe versus southern Europe distinction, rather than UK versus the rest of Europe – other than the currency. The extent to which we’re not tarnished by association with the euro is, I would say, a good thing.

Mark: Currently we view the most attractive European markets as being the Nordics, Germany and the UK; that’s where our portfolio is weighted. We’ve not really touched southern Europe for 10 years now but we continue to monitor the opportunity.

I think in the UK having the pound is an absolute positive, because the fund and transaction currency is not directly exposed to the uncertainty around the future of the euro.  But it’s also that the UK is the most established and sophisticated market in Europe; it’s a great place to do private equity. The legal and advisory infrastructure is there; the managers are there; and management teams and corporates are very willing to consider private equity as a means to either buy or exit a business.

The other aspect is that the tax and legal regime that we have in the UK is conducive to private equity. It’s a distinct advantage so I would not like to see the government tamper with that.

Markus: In the US, in particular, some investors see the UK as being the best place to continue with a European programme – because of how liquid and large the market is by comparison with others, and also because of how easy it is for them culturally and linguistically to understand what’s going on.

Some investors clearly buy the argument. Despite what’s generally agreed to be a very difficult fundraising climate, there have been some conspicuous successes for UK-based firms in recent months. Why is that?

Mark: There’s been a definite flight to quality in terms of the funds that are closing quickly. These managers typically exhibit a number of key qualities including stable, high quality teams and a great track record through the cycles. In many cases, they also have the capability to really take advantage of the current opportunity via a strong sourcing model, the ability to take on more complex deals and the operational skills to fundamentally change and improve the businesses they acquire.

Sean: It’s also about continuity of the team. If you have the experience of working across multiple cycles with multiple funds, I think that must give a lot of comfort to investors. They know you’ve been there, made the mistakes and moved on – which is influencing the way you deploy capital now. For instance, our experience of the last recession meant that when we were quite slow to deploy capital after 2008, we weren’t worried – we knew we just needed to wait for the market to come back a bit.