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Small cap private equity drives UK buyout market

Study finds that lower midmarket transactions of less than £50 million comprised 80 percent of small cap private equity activity for the first half of 2015  

Small cap and midmarket private equity deals fuelled 80 percent of buyout activity in the UK market for the first half of 2015, according to a study by Lyceum Capital and Cass Business School.

The Cass UK Growth Buyout Dashboard, which analysed majority investments with enterprise values ranging from £10 million to £100 million, found that lower midmarket transactions valued at less than £50 million had increased 16 percent on a year earlier.

The volume of deals between £10 million and £50 million totalled £825 million for the first half of 2015, the highest level in two years, despite transaction values remaining depressed in the overall lower mid-market.

“Britain’s small- and medium-sized companies have always been a strong feature of private equity-led M&A activity. These figures show this trend is accelerating, most notably at the smaller end of the market,” said Andrew Aylwin, a partner at Lyceum Capital.  

“Our own experience has also shown that companies at this scale are more insulated from macroeconomics and more able to change course if market conditions do become more challenging.”

Lyceum is focused on lower midmarket UK-based companies, typically investing £5 million-£50 million of equity per deal.

Lower mid-market activity has proved to be resilient over the last two years, with less volatility than other market segments, said Scott Moeller, Professor in the Practice of Finance at Cass. “Despite the recent macroeconomic shocks around the world, the UK’s lower mid-market is providing an ample supply of quality companies,” he said.

Lyceum and Cass said three IPOs within the market segment this year also showed public market interest for small and mid-sized companies.