UK buyout market revitalises

Despite being generally regarded as the top private equity market in Europe, the UK’s buyout industry has suffered in recent years, courtesy of a sluggish economy and upheaval in the nearby Eurozone.

Yet as we enter 2014, there are clear signs that the tide has turned. Indeed, consultancy firm PwC believes the UK is on course to be the fastest growing major European economy in 2014, with expected GDP growth of between two and three percent.

Moreover, PwC expects UK GDP growth to rise above pre-recession levels for the first time in the fourth quarter of this year, while the UK budget deficit is set to fall below £100 billion in 2014-2015 for the first time since the downturn. Additionally, UK house prices are expected to rise by around 4 percent on average this year.

This more positive sentiment is already being reflected in the country’s buyout market – with investors allocating more capital to the UK than in previous years. In 2013, UK-focused GPs raised $2.7 billion, compared to $2.4 billion in 2012 and $2.5 billion in 2011, according to PEI’s Research and Analytics division. Graphite Capital, HgCapital, August Equity, Dunedin and Synova Capital all closed funds on or above their targets, illustrating LPs’ appetite for the country.

UK fundraising in 2013 was better than expected, according to Markus Golser, a senior partner at Graphite Capital. The firm, which held a £475 million ($780 million; €576 million) final close in September, raised its eighth buyout fund in just seven months without using a placement agent.

Golser puts the growing interest in the UK and Europe down to a slight subsidence of the Eurozone crisis. “I think it’s partly driven by equity markets rising strongly and therefore, by correlation, investors raising their allocations to alternative assets and private equity,” he says. “On the whole, the mood was more positive than people thought initially.”

This time last year, some North American investors wouldn’t touch Europe with a bargepole. But this is no longer the case, according to Sean Whelan, managing partner at ECI Partners. “I wouldn’t like to speak for US LPs, but I have to believe that sentiment is better than it was. The UK is a well-established market for private equity, with a number of well-established players consistently delivering good returns. I would argue it’s a good place for LPs to put their money.”

“There were quite a number of successful fundraisings that took place last year, which is encouraging,” says John Gripton, a managing director and head of global investment management at Capital Dynamics. “Where managers have done a reasonable job, I think they can successfully raise capital to invest in the UK. I think we are getting back into that rhythm again of a three- to four-year fundraising cycle.”