UK PE market braces for more uncertainty post no-deal Brexit

Capital raising, deal financing and talent retention will face more challenges, according to panellists at a private equity conference in London.

GPs and LPs are deferring decisions on capital-raising and investment activity in the UK until the government sets a course for where the country is going, according to panellists at a private equity conference in London Thursday.

PE Insights, UK PE outlook panel
L-R: Eric Halverson, Qualitas Equity Partners; Paolo Simonato, BlackRock; Colm O’Sullivan, PAI Partners; Nigel Walder, Bain Capital; David Jeffrey, StepStone (Source: Private Equity Insights)

With the government’s ability to navigate complexity and deliver solutions in times of uncertainty – whether there is a deal or not – at an all-time low, the UK PE industry is facing disruption and inflation pressures, panellists said at the PE Insights’ UK Conference 2019.

“Brexit will be bad for our industry,” said Colm O’Sullivan, a partner at PAI Partners. “The short-term volatility is going to be enormous – the consequences in British politics will be chaotic and no one knows if there will be government in six weeks’ or six months’ time, or in a few years.”

O’Sullivan added that while there will be opportunities amid market complexity, there would also be “lots of pressure on the stability of cashflow in businesses”.

StepStone Group partner and head of Europe David Jeffrey noted that the fundamental issue UK private equity faces with Brexit is attracting global capital in a time of uncertainty, when LPs can invest in other areas of the world.

Two other concerns on the minds of GPs are attracting and keeping talent from the EU, as well as functioning capital markets as it relates to UK businesses, said Nigel Walder, a managing director in the consumer, retail and dining vertical of Bain Capital.

“We are used to financing acquisitions of our businesses and effectively exiting them,” Walder said. “Time will tell whether capital markets could also be a significant risk post-Brexit.”

There’s also a “sense of a drift away from London”, which is having an impact on expertise, people and the ability to exit investments, panellists noted.

“The European countries will get rid of the level playing field in financial services in the last 20 years or so and we will end up with a lot of people moving offices and setting up Luxembourg subsidiaries,” O’Sullivan said.

Increased political interference post-Brexit could also be an issue, particularly with increased protectionism in deals, Jeffrey said. “The UK is well-regarded as an open market but with the government being asked to look at the Inmarsat and Advent-Cobham transactions…if that’s a trend that continues, it raises question marks on how open the UK market will be going forward.”