Acquisitions of UK companies by US PE funds jumped 53% last year

• Lower comparative valuations means UK companies look cheaper versus foreign rivals 
• Interest from EU and Chinese PE funds too

London — The total annual value of acquisitions of UK companies by US private equity funds jumped 53%* last year to £14.2bn, up from £9.3bn in 2018, says Mayer Brown, the global law firm.

Mayer Brown asserts that the relatively depressed valuations of UK companies versus their European peers has made them look to be particularly good value for US-based PE funds.

Brexit and pre-election uncertainty means that UK shares went through a significant period of underperformance after August 2019 when compared to European listed companies. The FTSE100 has risen just 4% over the last year, whilst the FT EuroFirst 300 Index has risen 15%**. This widening valuation gap will have impacted large UK private companies as well as listed companies.

The research also shows that the value of acquisitions of UK companies by EU-based PE funds also increased to £1bn last year, up from just £42m the year before. Acquisitions by Chinese PE funds reached £515m, up from a negligible value in the previous year.

Mayer Brown says periods of more intensive Brexit jitters have, in retrospect, represented a good opportunity for PE funds to acquire high quality assets at low earnings multiples. 

Depressed valuations of UK companies could continue 
Mayer Brown adds that this period of depressed valuations relative to European companies could continue as negotiations over the UK’s trade deal with the EU rumbles on. 

Perry Yam, partner and co-Head of the Global Corporate & Securities practice at Mayer Brown, said: “There are still plenty of buying opportunities in the UK for PE funds. They can continue to draw on record levels of dry powder and access to debt is as abundant as ever.”

“But don’t expect the M&A market to suddenly race ahead. Valuations still need to be sensible and well-founded for PE funds, and the last 12 months has seen weak trading for the UK economy – denting earnings’ growth and stretching valuations. Sellers will need to reflect that in their asking prices.
“It will always be difficult for a business owner to accept their business is worth less than they had been told it was at the start of a sales process.”
Major acquisitions of UK companies by US PE funds in 2019 included:

• Acquisition of software maker Sophos Group by Thomas Bravo
• Acquisition of aerospace and defense group Cobham by Advent International 

Data also shows that the value of acquisitions of UK companies by EU-based trade buyers last year was also high at £20.1bn, up slightly from £20bn in 2018 and £13.1bn in 2017. 

Perry Yam added: “The clearing of the political uncertainty during 2019 may encourage EU-trade buyers back into the UK market although this is yet to be proven. UK companies still boast terrific IP, skillsets and market positioning; the new government’s commanding majority and low interest rates, may encourage buyers to part with their cash.”

*Year-end December 31 
**Accurate as of February 5 2020