By Daniel Hunter
Britain’s small and medium sized enterprises (SMEs) continued to drive the market for private equity led buyouts during the first half of 2015, according to Lyceum Capital and Cass Business School’s UK Growth Buyout Dashboard.
The Dashboard, which analyses control investments with an enterprise value between £10 million and £100m, shows the volume of transactions during the first half of 2015 was consistent with the previous six months (H1 2015: 35; H2 2014: 36).
Smaller deals, with a value lower than £50m, however accounted for 80% of activity and increased 16% on the first half of the year.
The total value of transactions with a value between £10m and £50m reached £825m during the first half of the year, the highest level in two years, despite depressed deal values in the overall lower mid-market.
Lyceum, which specialises in backing smaller, growth companies, said the figures underlined both the quality of Britain’s SMEs and the opportunities presented by a recovering economy to build scale and create value. The firm also said SMEs had shown themselves to be more resilient than global corporates to the macroeconomic headwinds over the last six months, such as continued eurozone uncertainty and a slowdown in China.
The report also shows a returning appetite for SMEs within the public markets, with three exits by IPO.Andrew Aylwin, Partner at Lyceum Capital, said: “Britain’s small and medium-sized companies have always been a strong feature of private equity-led M&A (mergers and acquisitions) activity. These figures show this trend is accelerating, most notably at the smaller end of the market where private equity often has a greater opportunity to drive transformational growth, value creation and investor returns. Our own experience has also shown that companies at this scale are more insulated from macroeconomics and more able to change course if market conditions do become more challenging.
“I believe firmly that this is the size range where private equity can add maximum value through investment and operational support to support organic, acquisitive and/or international expansion, helping them to become tomorrow’s world class companies.”
Scott Moeller, Professor in the Practice of Finance and Cass Business School, said: “Driven by consistent back-to-back activity for both realised investments and exits in 2013 and 2014, we expect 2015 to be the third year in a cycle of strong private equity activity. Indeed, lower mid-market activity has been remarkably consistent in the past two years, with less volatility than other equity and financial markets.
“Despite the recent macroeconomic shocks around the world, the UK’s lower mid-market is providing an ample supply of quality companies with strong management teams that make use of private equity investment to drive organic growth and buy-and-build strategies.”