UK private equity activity soars to highest level in five years, despite impact of COVID-19 on the economy, says KPMG

New analysis from KPMG.

New analysis from KPMG.

  • Flurry of activity in Q1, with growth expected in tech-driven sectors
  • Healthy levels of mid-market PE activity as funds compete for quality assets
  • Mid-market multiples at record high 11.9x earnings

Private equity investment in the UK has risen to its highest level in five years, as investors gained a renewed sense of confidence and vendors brought their assets to market – according to new analysis from KPMG.

KPMG’s latest study of UK transactions involving mid-market private equity investors showed a boost of activity in H1 2021, as 377 deals were completed with a combined value of £20.7 billion – levels which haven’t been seen since H1 2017. This is a significant increase when compared to the same period in 2020, which saw 260 deals with a combined value of £14.9 billion.

The picture for the UK’s private equity market overall was similar, with soaring deal volume and value levels which haven’t been seen since 2017. Between January and June 2021, 785 deals were completed with a combined value of £73.7 billion, representing a 61 percent increase in volumes and a 48 percent increase in value when compared to H1 2020.

Jonathan Boyers, Head of KPMG’s UK Corporate Finance practice, said: “Many predicted 2021 as the year for greater stability and increased market confidence, and the burst of transaction activity we’ve seen in H1 is a strong indicator that the bounce-back is well underway. The momentum from Q4 2020 picked up pace in Q1 2021 as pent-up demand started being released. Deals that had been put on hold in spring and summer 2020 were revived as private equity investors returned to the market with renewed appetites and plenty of cash to deploy.

“A number of mid-market deals which had been held back, initially because of Brexit, and then the pandemic, finally came racing out of the blocks driving up both deal values and volumes. The flurry of activity in Q1 was also fuelled by the rush to complete deals ahead of the anticipated changes to the capital gains tax regime that many expected in March 2021’s spring budget. In Q2, mid-market PE activity levelled off somewhat and has now returned to pre-pandemic levels, and after the last 16 months that we have had, it’s phenomenal to see activity this high, this fast.

“As vendors and investors moved to virtual meetings and digital transactions, the working efficiencies created by the impact of the pandemic also proved fruitful, as deals were progressed quickly and efficiently. However, as people begin to travel and meet in person again, I believe this may pose some challenges in maintaining the exceptional level of activity seen in Q1.”

Business Services and TMT steal the show for PE investors

While deal volumes increased for every sector measured in H1 2021, Business Services and TMT once again stole the show, accounting for the majority (62 percent) of private equity investments in the UK’s mid-market. Many businesses in these sectors have strong tech angles, so it’s no surprise that they attracted the lion’s share of investment and rising multiples. It’s a similar story with deal value by sector, as the value of TMT deals completed in the first half of 2021 almost doubled from £2.8 billion in 2020 to £5.1 billion.  Alex Hartley, Head of Private Equity within KPMG’s UK Corporate Finance practice, believes that the sectors that saw a frenzy of activity were those that had proven their resilience and confirmed their high growth potential.

He said: “Unlike many other sectors, the pandemic actually acted as a catalyst for growth instead of restricting it. Private equity firms have been focused on backing digitally-driven businesses to keep pace with accelerated demand, and this enabled fast-growing businesses in these sectors to bring forward exit strategies by 12 months or more. However, a lot of sectors are converging on tech, so pricing in those areas has been strong. Private equity investors are likely to continue chasing the businesses that have fared best and shown robustness, so we expect to see further activity in sectors such as TMT, Business Services and Healthcare, as well as those that can demonstrate a strong ESG angle.”

Fierce competition as mid-market PE exits heat up

In recent years, private equity exits have been few and far between, and the expectation was that there’d be a pick-up once Brexit was out of the way, and then the pandemic hit. However, confidence improved following the success of the vaccine rollout, prompting a wave of exit activity in Q4 2020 at a level not seen for three years.

The momentum was short lived, however, as H1 2021 exit volumes dropped by 29 percent from 66 to 47, although exit activity was slightly higher in Q2. Interestingly, aggregate values increased by 38 percent from £4.5 billion to £6.2 billion due to the increasingly competitive dynamic between trade and private equity, as well as the increase in IPOs.

Trade and private equity accounted for over a third of all exits respectively, representing 72 percent of acquirers of mid-market PE exits. Whilst this competitive dynamic highlights an even split between trade and private equity, the values being paid by private equity were significantly higher. As they both hunt for quality assets, it’s clear that private equity investors have the monetary fire power to compete aggressively on price for these businesses.

Mid-market multiples soar to record highs

Whilst the price earnings multiples paid remained flat during the first half of the year, at 9.4x earnings, the average multiple for private equity transactions rose from 8.9x earnings to 11.2x earnings. In a similar vein, the PE mid-market saw multiples soar to 11.9x earnings, up from 8.6x earnings in 2020 – the highest seen since 2017.

Jonathan Boyers commented: “Multiples have been driven up to record highs and dominated by private equity. The numbers we’re seeing are also reflective of the sector bias of deals over the last six months, most notably TMT, Business Services and tech-enabled businesses. It’s easy to understand why – private equity investors have a mountain of dry powder available and need to deploy funds, so they will continue to flock to sectors and businesses with solid business models and high growth rates.”

Outlook for H2 and beyond

Jonathan Boyers concluded: “While Brexit and the US election are no longer factors impacting investor confidence, the pandemic is still very much front of mind. It’s fair to say that any expectations about the future must be couched in an extra layer of cautious optimism. And, if the record-breaking level of PE activity in Q1, which then plateaued in Q2, is anything to go by, it’s a stark reminder that nothing can be taken for granted.

“However, there are reasons to be optimistic. The M&A market is strong with lots of activity in high-growth sectors, and these will continue to attract high levels of interest from private equity, both domestic and overseas.

“COVID-19 has accelerated a long-term change in the market’s approach, and given the varying impacts of the pandemic and lockdowns across different sectors, PE activity is likely to continue chasing robust sectors, along with those embracing ESG.

“Confidence, pent-up demand and sheer relief is likely to lead to an increase in GDP and ensure a healthy market for mid-market PE transactions, albeit with substantial variation between sectors. Reserves of investment capital are high, debt is plentiful and uncertainties about Capital Gains Tax changes remain. This, coupled with the fact that at some point, PE owners are going to have to start exiting previous investments, means the conditions look positive for a continued resurgence in mid-market deal activity in the second half of 2021.”


For further information, please contact:

Jo Chileshe, Senior PR Manager, KPMG

Tel: 07919 211 803


KPMG Press Office: 020 7694 8773


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