Private equity needs to look beyond London to compete for deals

03 November 2011 – 

Private equity needs to look beyond London to compete for deals

Even though the majority of UK private equity firms plans to be active outside London in the coming months, most only have offices in London and do not plan to open any regional offices, according to Grant Thornton's latest Private Equity Barometer.

The quarterly survey of more than 100 private equity executives in the UK also shows that 37% of private equity firms expect to see increased competition in the UK to come from the government-backed Business Growth Fund (BGF) in the coming 12 months.

"UK private equity firms seriously need to consider how they intend to tackle regional markets if they wish to compete for deals with committed regional players like LDC and the Business Growth Fund. After all, more than half our respondents expect to be active in regions outside of London while very few are prepared to open offices there. Meanwhile, it is no coincidence that LDC, with its strong regional office network, managed to close eight buyouts in the year to date. Moreover, the BGF is in the process of establishing its local presence around the country," commented Mo Merali, head of private equity at Grant Thornton UK LLP.

"Take the north of England for example - 73% of our respondents expect to be active there in the next six months, while two thirds have no plans to run an office in the region. Having people on the ground would dramatically improve their chances of generating proprietary dealflow outside London. Just being in a region means that you pick up local intelligence on interesting companies," said Merali.

"Scotland can also expect a fair share of commuting private equity professionals - even though half of the respondents to the survey expect to be active there in the next six months, 87% do not have an office in Scotland and do not expect to open one."

The survey shows that the most coveted sector group for investment will be business support services infrastructure and logistics, where 42% of respondents are expecting to be most active in the next 12 months, followed by industrials, manufacturing and engineering (34%).

Yet, in terms of valuations in the next 12 months, respondents expect the highest EBITDA multiples to be in high technology (8.4) and financial services (8.1). These would affect 29% expect to be most active in high technology, while only 14% expect to be most active in financial services.

"These broad sector preferences certainly tally with our experience in some of the regions we operate in, where a growing range of potential bidders are showing an interest in related subsectors like precision engineering into the defence, nuclear and aerospace industry, the waste and environmental area plus technology," concluded Merali.

Table: Grant Thornton Private Equity Barometer Q3


London South North Midl. Anglia Scotl.
Where PE expects to be active: 91% 77% 73% 70% 53% 50%
Where they have offices 96% 20% 34% 22% 3% 13%
Where they plan 0 1% 0 0 0 0


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