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UK seen as attractive market for US firms due to lower valuations and cultural similarities
Many US firms are expanding in London as they look for more opportunities to allocate cash

London — The number of UK businesses acquired by US private equity houses has jumped 75 percent from 37 to 65 in the past year* as PE funds look to the UK for value, shows research** from Mayer Brown, the global law firm.

US PE firms also account for a larger share of takeovers of UK businesses, rising from 18 percent of total UK PE deals last year to 21 percent in 2021. Meanwhile, the share of UK PE acquisitions by UK PE funds has fallen from 72 percent last year to 67 percent in the same period.

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

This gap in valuations has been caused by the slowdown in the UK economy since the EU Brexit referendum and during that period, the EU economy has held up relatively well. With slower economic growth and broader Brexit uncertainty in the UK, sterling has fallen sharply against both the dollar and the Euro, which has made deals more attractive for overseas buyers.

The biggest recent transactions span a variety of sectors including infrastructure, financial services, retail and healthcare.  

Mayer Brown said the US market for private equity deals has become saturated and US firms are now increasingly looking overseas.

US PE firms consider the UK to be an attractive jurisdiction as it has similar regulation to the US and is generally more receptive to private equity transactions than European peers such as France and Germany. For example, employers in the UK have more flexibility to restructure their workforce than in some parts of Europe. The levels of tax and social security costs in the UK are also seen as closer to the US model than other European countries.

Many US private equity firms are expanding their presence in London as they look for more opportunities to allocate cash.

James West, private equity partner in the Corporate & Securities practice at Mayer Brown, said: “US groups have huge amounts of cash to deploy and they prefer the UK when targeting deals as it has a similar culture and regulation to the US.”

“UK central government and local government don’t have the reputation amongst investors for intervening in commercial decisions of businesses that some countries in the EU have.”

“The market for deals in the US has been fairly heavily mined, whereas in the UK the environment is more fertile. The number of US firms in London is growing and there will be more new entrants.”

Deals by US private equity jumps from 37 to 65 in a year as US groups take rising share of takeovers for UK businesses.

*Year to 30 June
**The research was based on analysis of Mergermarket data