The value of private equity deals in the UK fell by 12% in H1 2023, to £32 billion, according to a new report from KPMG.
The number of deals also fell, from 475 in H1 2022 to 327 in H1 2023.
- Mid-market private equity investment cooled in H1 2023 as economic and geopolitical uncertainty, debt market liquidity and pricing continued to impact investor confidence
- Investment in TMT businesses declined by almost a third, while bolt-on and minority deals rose
- Core building blocks for M&A are in place, but confidence and economic stability are key to unlocking the market
Commenting on the findings, Alex Hartley, Head of Private Equity within Corporate Finance at KPMG UK, said:
“While there were high hopes of a return to stability as we entered 2023, it soon became clear that rising inflation and interest rates, together with geopolitical uncertainty, continued to erode confidence and impact deal volumes. These challenges also impacted the debt markets and we saw a significant increase in the price of debt, a much more cautious approach from credit committees to new deals and reduced leverage multiples. The private equity mid-market has been more resilient to some of these factors, whereas larger private equity transactions have been more impacted by the debt markets in particular, with the overall private equity market declining in volume by almost a quarter. However, while deal volumes are down, the level of activity seen in H1 2023 is still on par with pre-Covid levels, and deals are still getting done, but, outside of the premium assets, are generally taking longer to complete.”
The outlook for private equity activity in the UK is uncertain.
The report said that activity is likely to remain subdued in the near term, as investors continue to assess the impact of market volatility and economic uncertainty.
However, the report also said that there is still strong underlying demand for private equity investment in the UK.
The report concluded that private equity firms will need to be more selective in their investment decisions in the coming months.
They will also need to be prepared to pay higher valuations for assets, as competition for deals remains fierce.
