August 16, 2021

Value of UK club deals jumps to £10.3 billion as investors team up to target larger companies


Value and number of bids jumps as deal making activity hots up

Club deals allow investors to target bigger deals and share risk

London — The value of ‘club deal’ acquisitions of UK businesses has risen 28 percent from £7.4 billion to £10.3 billion in the past year* as investors increasingly team up to target larger companies, said Mayer Brown, the global law firm.

In a very low interest rate environment where the return on uninvested cash is almost zero, investors in private equity funds are pressuring PE managers to deploy capital quickly. As a result, many funds have become more open-minded in the type of deals they pursue, helping to drive the rise in club deals.

A ‘club deal’ is when two or more private equity or trade buyers jointly acquire a company. Club deals allow groups of investors to buy bigger targets and share risk. In some cases this can reduce the amount of leverage needed, allowing deals to be funded more quickly and with more certainty.

As well as the overall value of club deals rising, the number of these acquisitions in the UK has also increased, rising from 38 last year to 50 this year. One of the biggest club deals during the year was the £6.8 billion acquisition of supermarket chain Asda, bought by the Issa brothers and private equity group TDR Capital.

Another notable club deal was the £680 million acquisition of specialist insurance broker Miller Insurance Services by private equity group Cinven and GIC, Singapore’s sovereign wealth fund.

James West, private equity partner at Mayer Brown, said: “The M&A market is very hot at the moment, with so much capital chasing opportunities. One way for bidders to open up these opportunities is to club together so they can pursue bigger deals.”

“Club deals allow investors to get access to a bigger universe of potential deals that would ordinarily be beyond their capacity or their risk appetite. That can allow them to get uninvested cash deployed more quickly.”

According to Mayer Brown, before entering into a club deal, investors need to have similar expectations for the investee company. They need to ensure they are comfortable with the structure, management and decision making of the business.

West added: “Partners in a club deal need to be like-minded. They need to trust each other about the company’s true prospects for growth and agree on the strategy. Will it be organic growth or come from acquisitions? Will one fund act as the ‘lead’ on the deal or will decisions be made collectively? These can be tricky questions.”

Value of UK 'club deals' jumps to £10.3 billion

UK club deals

*Year to 30 June 2021

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