UK mid-market continues to flourish

Nearly half of UK buyout firms believe their investment “sweet spot” lies between £50 and £150 million, according to new research.

Advisory boutique Close Brothers conducted a survey of nearly 100 UK buyout firms, who were asked to select their ideal deal size – although they were allowed to select more than one category.

It found that 47 were targeting deals valued between £50 and £150 million, almost twice as many as those targeting deals in the sub-£50 million space. 37 firms were chasing targets valued between £150 and £300 million, with fewer than 20 firms searching for deals worth more than £450 million.

Darren Redmayne, head of the European financial sponsors group at Close Brothers, said: “This research backs up what we all know anecdotally – that there is a lot of private equity money chasing deals. Companies in the £50 to £150 million deal range are being targeted by the smaller funds, which are reaching up, and the larger funds, which are dipping down, so it’s a crowded space.”

The result is partly a reflection of the opportunities available, according to Close. There are 491 London Stock Exchange listed companies in the £50 to £150 million range, with 225 valued between £30 and £50 million and 204 in the £150 to £300 million range.

The news comes as the latest figures from Lloyds Development Capital’s twice-yearly mid-market Private Equity Barometer show that activity in this segment – which it defines as deals worth between £5 million and £500 million – increased by 35 percent in the first half of 2007. 132 deals took place, up from 98 in the same period last year, although overall deal value remained steady at £3.66 billion.

Despite the trend identified by Close of buyout firms targeting deals in the £50-£150 million range, it was actually the smaller end of the market that drove this growth – deals valued between £5 and £50 million were up 44 percent by volume and 32 percent by value.

Grant Berry, LDC UK regional managing director, said: “The statistics show strong momentum within the private equity market, particularly in the mid-market segment, which is all about supporting growing businesses. The volume of deals has also not been impacted by the tightening in the debt markets.”