Will Copeland of Equistone in the Midlands

The Midlands has witnessed a private equity-backed rebound with a significant rise in both the number and value of private equity-backed management buy-outs and buy-ins during the past six months to a 14-year H1 high, according to provisional data from CMBOR, the Centre for Private Equity and MBO Research.

Funded by Equistone Partners Europe as exclusive sponsor, CMBOR’s latest report has found that the value of private equity backed acquisitions in the Midlands (East and West) amounted to £1.5bn in the past 6 months – 4x the average for the same periods across 2017-19 (£361m) and the highest H1 since 2007 (£1.8bn).

So far this year, there have been sixteen deals in the Midlands compared to an average of fourteen deals for the same period across 2017-19 indicating that the average deal size in the region has increased significantly.

In the West Midlands, nine private equity-backed deals were recorded in the first half of 2021 compared to an average of eight in the same period 2017-19. Values were similarly up. Deals in the West Midlands amounted to £883m in the first half of 2021 – compared to an average of £190m in the same period 2017-19.

In the East Midlands, seven private-equity backed deals were recorded in the first half of 2021 compared to an average of five in the same period 2017-19. Values were also up. Deal value in the East Midlands in the first half of 2021 stood at £569m – compared to an average of £171m in the same period 2017-19.

H1 2020, considered an outlier due to the pandemic, saw £122m worth of value across eight deals across the Midlands.

Will Copeland, from Equistone’s Midlands office in Birmingham, said the provisional data told a story of a resurgence that, although expected, was greater than anticipated.

“Deal activity levels across the Midlands in the first half of the year have been exceptionally high.  What we have seen since the lull in deal activity in Q2 2020 is a testament to the successful response of the industry in this initial crunch period. Investors have sufficiently addressed issues within their portfolios to be able to resume backing businesses and realising value,” said Copeland.

“Whilst at the turn of the year the assumed capital gains tax changes were initially believed to be driving activity, both completed transactions and pipelines of future transactions have continued at a pace.

“There is a combination of high levels of private equity dry powder, strong appetite from lenders and shareholders looking to de-risk whilst activity levels are high and protecting against any future economic shocks.

“There appears to be higher demand than supply for high quality, resilient businesses, which is resulting in a sizeable increase in valuations.  When combining this with the challenges of assessing underlying earnings during Covid in many industries, it means that the 2021 MBO vintage deals will be interesting to watch over the coming years with a likely wider range of returns than usual.

“Meanwhile, as government support for business is scaled back, it is difficult to predict the time lag to when we will start to see businesses come to market in more distressed circumstances, which could present interesting opportunities for bolt-on acquisitions of PE assets,” said Copeland.

Across the UK, there have been 118 deals since January with a combined value of £20.5bn.  This compares to an average of 102 deals with a combined value of £9.1bn across the same periods in 2017-19.

The UK remained largest by volume over the past 12 months with 207 deals that totalled £24.4bn, fuelled by a robust mid-market; buyouts in the £50m-£500m range accounted for 29.3% of the total value, up from 16.6% in 2019.

The resurgence in deal-making was also in evidence in exit activity, with 120 realisations in the UK in the past 12-months totalling £24.46bn, compared to the same number of exits in the previous 12-months with a value of £8.93bn.