Private equity dealmaking slumped 20 per cent as UK financial services bucked trend
UK private equity activity declined by 20 per cent in 2023, according to a report from KPMG, with financial services being the sole sector to see an uptick in dealmaking.
In the firm’s latest Mid-Market Private Equity report, looking at deals between £10m and £300m, it revealed that there had been 675 transaction throughout 2023, compared to 735 the year before.
Throughout the entire market, it reported that deals had fallen even more significantly, dropping from 1,802 in 2022 to 1,451.
Financial services was the sole sector to actually see an increase in investment activity, with 95 deals worth a total of £9.5bn closing last year, up 13.6 per cent from 2022.
Despite a decline, business services remained the dominant sector for activity in the space, accounting for 44 per cent of deals, followed by Tech, Media and Telco (TMT), which made up 18 per cent.
However, TMT deals saw a sharp decrease throughout the year, dropping 24 per cent to the lowest level in five years.
Rob Baxter, head of corporate finance at KPMG UK, said the figures were “not surprising” due to the challenging market conditions of 2023.
“In a year when 65 per cent of all mid-market private equity deals were bolt-ons, it’s clear that firms are increasingly looking to add value to their portfolio companies through scale,” he added. “It’s a trend I suspect we’ll continue to see for the next 12 months at least.”
Baxter argued that despite the poor figures, he had hope for “green shoots” in 2024, as economic stability returns to the country, aided by falling inflation and interest rates, even as financing costs will remain high.
“That being said, overall the fundamentals that underpin the private equity market are still very much in place,” he added, “Capital is available, valuations have started to normalise and the debt markets are still supportive – albeit with greater scrutiny and higher costs.”