UK & Ireland Private Capital Breakdown
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UK & Ireland Private Capital Breakdown 2021 Contents PitchBook Data, Inc. John Gabbert Founder, CEO Adley Bowden Vice President, Introduction 2 Market Development & Analysis Nizar Tarhuni Director, Institutional Research PE deals 3 Institutional Research Group PE exits 6 Research PE fundraising 8 Dominick Mondesir Analyst, EMEA Private Capital [email protected] VC deals 10 Nalin Patel Analyst, EMEA Private Capital VC exits 13 [email protected] [email protected] VC fundraising 15 Data Bailey York, Data Analyst Publishing Designed by Joey Schaffer Published on May 17, 2021 Click here for PitchBook’s report methodologies. Introduction Europe’s largest PE market has had an impressive UK & Ireland VC deal value is on course to surpass start to the year, with deal volume and value reaching the current annual record, while exit value has already quarterly peaks. The technology and healthcare reached a new landmark figure. Despite Brexit, UK- sectors—two havens during the COVID-19 pandemic— based startups have continued to close deals and press hit quarterly volume highs. Public listing exit value had ahead with ambitious growth plans. Late-stage capital an inspiring first quarter, and PE exit volume followed has dominated deal value, and financing options have suit—reaching its highest-ever quarterly exit volume grown—thus allowing UK & Ireland startups to lengthen total. After a record-setting 2020, capital raised had their investment runways. During the pandemic, a subdued Q1 performance. The region’s fundraising financial technology (fintech) and healthcare have market has experienced its own version of a K-shaped remained popular sectors, and US investors have recovery, with the largest and most experienced accelerated investment into the UK & Ireland. After Q1’s managers increasing their LP wallet share, while high-profile public listings, exit value reached a new smaller managers find the environment challenging. record. Finally, fundraising in the region had a solid That said, we anticipate the fundraising market for start to the year as appetite from a diverse set of LPs smaller managers will significantly improve through remained strong. the remainder of 2021, especially as global mobility accelerates, LP risk appetite increases, and the UK and EU draw closer to a financial services agreement. Dominick Mondesir Nalin Patel EMEA, Private Capital Analyst EMEA, Private Capital Analyst 2 PITCHBOOK 2021 UK & IRELAND PRIVATE CAPITAL BREAKDOWN PE deals PE deal activity 804 +132% 479 341 366 346 337 334 312 303 325 313 300 316 314 309 310 316 254 259 256 184 £18.8 £16.4 £17.0 £17.2 £29.9 £24.3 £50.6 £29.7 £20.7 £32.6 £36.0 £27.4 £22.3 £23.3 £28.9 £41.4 £34.0 £17.5 £23.3 £24.8 £33.7 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2016 2017 2018 2019 2020 2021* Deal value (£B) Estimated deal value (£B) Deal count Estimated deal count Source: PitchBook | Geography: UK & Ireland *As of March 31, 2021 Dominick Mondesir EMEA, Private Capital Analyst In addition to the factors discussed in our broader Q1 [email protected] 2021 European PE Breakdown, the UK’s hefty fiscal- monetary package—which saw the Conservative government borrow more than at any time since Since Q2 2020, Europe’s largest PE market has been World War II—propelled PE deal activity due to the on a bull run. Its Q1 2021 showing has been impressive: sufficient liquidity bridges helping companies ride out Buoyed by increasing micro-cap and middle-market lockdowns. The UK’s leading inoculation programme, activity, deal volume and value reached quarterly coupled with greater political certainty thanks to the peaks.1 In Q1 2021, an estimated 804 transactions avoidance of a no-deal Brexit, also contributed. These closed worth £57.9 billion in aggregate—denoting elements improved dealmaker visibility into future YoY increases of 132.3% and 70.0%, respectively. For company earnings. Sponsors were able to confidently context, the next-highest quarterly deal volume and and quickly forecast the general path to recovery, as value figures in our datasets were 479 in Q4 2020 and the economy was shielded from the material economic £50.6 billion in Q3 2017, respectively. scars of mass unemployment, bankruptcies, and Top five investors in the UK & Ireland IT sector since 2015 Investor Investor HQ Deal count* BGF United Kingdom 79 LDC United Kingdom 76 Hg Capital (UK) United Kingdom 73 TA Associates Management United States 60 Maven Capital Partners United Kingdom 47 Source: PitchBook *As of March 31, 2021 1: Micro-cap deals are deals sized under £25 million. Middle-market deals are deals sized between £100 million and £500 million. 3 PITCHBOOK 2021 UK & IRELAND PRIVATE CAPITAL BREAKDOWN PE deals PE dry powder (£B) PE dry powder £250 £243.2 Total £216.1 2020 £200 2019 £190.3 2018 £173.8 2017 £166.4 £167.1 £158.1 £152.8 2016 £150 £149.0 £152.0 £147.5 2015 Overhang by 2014 vintage 2013 £100 £50 Cumulative overhang £0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* Source: PitchBook | Geography: UK & Ireland *As of September 30, 2020 defaults. As a result, the UK’s economy is projected to favourable credit conditions, astonishing capital grow around 7.25% in 2021—boding well for cyclical inflows, and 2020’s weak FTSE 100 performance—will PE-backed assets, which tend to be GDP linked.2 keep deal activity strong.4 That said, the UK poses unique risks to GPs due to Brexit’s multiyear process We expect the intensity of UK PE deal activity to as opposed to being a one-time event. In the ensuing persist through the remainder of 2021, especially years, many post-Brexit changes will play out in the given the bulk of the UK economy was shut down PE arena. For example, while a formal agreement is throughout the past year and its reopening has close, the UK financial services sector has yet to sign gathered considerable momentum. For instance, an arrangement with the EU, which essentially fostered consumer spending has already risen above pre- a hard Brexit for this industry. As a result, added pandemic levels, and consumer confidence recently hit complexities—such as due diligence, structuring, and its highest level in nearly 12 months.3 The remarkable negotiation—to cross-border, M&A-related activities recovery in retail footfall, restaurant bookings, and will persist, especially regarding which overarching use of public transport suggests dealmakers will regulating authority ought to be followed. Moreover, be eager to deploy capital across a functioning UK the UK recently launched its National Security and economy. In addition, industry tailwinds—including Investment Bill, which extends its powers to block Top five investors in the UK & Ireland healthcare sector since 2015 Investor Investor HQ Cumulative funds raised (£M) Deal count* Apposite Capital United Kingdom £144.5 21 BGF United Kingdom £222.1 16 BC Partners United Kingdom £6,227.5 15 August Equity United Kingdom £616.1 14 Graphite Capital Management United Kingdom £470.0 11 Source: PitchBook *As of March 31, 2021 2. “Bank of England Sees Faster Economic Rebound, Slows Its Bond Buying,” Reuters, David Milliken & Andy Bruce, May 6, 2021. 3: “UK Consumer Confidence Rises to Highest Level Since First Lockdown,” Financial Times, Valentina Romei, April 23, 2021. 4: According to The Guardian, the Financial Times Stock Exchange 100 (FTSE) dropped by 14.3% in 2020, marking the poorest returns among the largest international stock indexes. 4 PITCHBOOK 2021 UK & IRELAND PRIVATE CAPITAL BREAKDOWN PE deals cross-border takeovers of UK companies in 17 PE deals (#) by sector sensitive industries. This bill will affect deal dynamics PE deals by sector (#) 100% for foreign-based acquirers of UK assets. B2B 90% B2C The technology sector continues to play an integral Energy role in UK PE deal activity as the digitisation 80% megatrend reshapes sponsors’ portfolios. In Q1 2021, Financial services 123 technology transactions closed, which marks a YoY 70% increase of 55.7% and sets a substantial quarterly deal Healthcare 60% volume peak. Most of the quarter’s activity came from IT the software subsector, which accounted for nearly 50% Materials & 60% of total deal volume. Several UK government resources initiatives are accelerating sponsor appetites for UK- 40% based technology assets. For example, the £500.0 30% million Future Fund will provide high-growth, UK- headquartered technology companies that have 20% proven business models with between £125,000 and £5 million in government funding as long as the cash is 10% matched by private investors. With this, we anticipate heightened sponsor involvement as more GPs increase 0% activity in the growth equity space and companies that 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 perhaps were not targets prior to the outpouring of 2021* government funding become GP targets. Additionally, Source: PitchBook | Geography: UK & Ireland the new fast-track technology visa scheme will help *As of March 31, 2021 the region attract international tech talent. As the UK redefines itself post-Brexit, sponsors are betting the Median EV/EBITDA buyout multiples* technology sector will be a big winner—especially as the Conservative government focuses on areas such 15.5x 15.0x as artificial intelligence (AI), data science, and clean energy to reignite the UK’s global competitiveness. 12.6x 13.0x 12.5x 12.6x 12.0x 12.2x The healthcare sector also reached a quarterly deal 10.9x volume high in Q1 2021, with 40 deals closing. This 8.6x marks a YoY increase of 14.3%. The UK’s £800.0 6.9x million Advanced Research & Invention Agency 5.5x 5.2x 5.8x 6.0x 6.5x 8.8x (ARIA), which is set to be operational in 2022, will 6.0x fund transformational science and technology at 6.1x speed.