UK lower mid-market buyout activity at 5-year high

New research from Lyceum Capital and Cass Business School shows a 12 percent increase in transactions in 2015.

Buyout activity in the UK lower mid-market reached its highest level for five years, according to research from UK-headquartered lower mid-market firm Lyceum Capital and Cass Business School.

The UK Growth Buyout Dashboard analyses private equity investments in 2015 with an enterprise value of between £10 million and £100 million. It found that transaction volumes increased 12 percent from 78 investments in 2014 to 87 investments in 2015, with value increasing slightly from £3.38 billion (€4.46 billion; $4.87 billion) to £3.43 billion.

However, total deal volumes remained 30-40 percent below the pre-crisis highs, Lyceum noted in a statement.

The majority of the investment activity took place in the second half of the year, thought to be as a result of the UK General Election held in May.

“This is a strong result for a market that many at the start of 2015 were predicting to be moribund or even dead,” Scott Moeller, director of the M&A research centre at Cass Business School, said in a statement.

“Most encouraging was the absolute number of deals especially in the last half of 2015, which bodes well for the coming year – despite the potential of a faltering global economy adversely affecting the UK and the overhang of Brexit.”

According to a report from the British Business Bank released Tuesday, around 350,000 new enterprises were registered in the last year, and the UK now has a record 5.4 million small businesses.

The Small Business Finance Markets Report 2015/16 found that equity finance investments in smaller businesses grew by 43 percent in the year to October 2015, while within the alternative finance sector business lending increased by 75 percent to £1.26 billion.

The UK Growth Buyout Dashboard found that the value of acquisitions in the £25-75 million range grew 52 percent to £2 billion year-on-year, which Lyceum considers to be an indicator of improved investor confidence in established businesses that want to accelerate growth.

An increase in appetite for deals is expected to continue through 2016, with investors focusing on companies’ earnings qualities and growth potential, Lyceum said.

“In a global economic market plagued with uncertainties ranging from falling commodity prices to volatility in the Far East, it is encouraging to see that the outlook for entrepreneurs and medium sized companies has never looked stronger,” Andrew Aylwin, partner at Lyceum capital, said in a statement.

“We expect these businesses to continue to attract increased amounts of investment and grow into industry champions over the next 12 months.”

The number of investments in the business services and industrial sectors increased 84 percent and 66 percent respectively year-on-year, while investment in retail and leisure businesses contracted by 33 percent to £866 million.

Investments in the healthcare sector also contracted by 33 percent in 2015 to four deals from six, which Lyceum sees as a “clear reflection of the concern businesses and investors alike have about reduced government spending and the significant impact the National Living Wage will have on costs from April”.