The value of overseas acquisitions by UK private equity funds has risen sharply in the past year as investors seek greater diversification ahead of Brexit, says accountancy and business advisory firm BDO LLP.
UK PE funds acquired £25.7bn of non-UK businesses in the past year, up 50% from £17.1bn in the previous year. This far outstrips the £7.9bn of UK companies they acquired in the past year.
BDO says that both UK-based private equity funds and their investors have been keen to diversify beyond the UK in preparation for potential economic disruption of Brexit. Some view that assessing the risk of investment in UK businesses has been made more difficult by Brexit uncertainty.
The firm adds that even without the effects of Brexit, modest economic growth in the UK over the past five years has led PE managers to invest more in faster-growth economies outside the UK to deliver greater returns.
Jamie Austin, Head of Private Equity at BDO, says: “PE managers and their LPs have been keen to increase the geographic spread of their investments. Building a more resilient, global portfolio of companies can insulate them not just from Brexit disruption, but from slow UK economic growth in general.
“There is still a clear need among many managers to deploy capital while also insulating their funds against UK economic risks. That makes investing overseas an obvious option.
“Accessing faster growth in other economies – even relatively close to home in Eastern Europe and the Baltics – can provide a substantial boost to returns.”
Jamie Austin adds that some traditionally UK-focused private equity funds have been given greater flexibility by their LPs to invest overseas. While larger funds often have unconstrained mandates, even many smaller British PE funds are allowed to invest up to 10% of their capital outside of the UK.
“Bigger buyout funds are often given complete freedom by their LPs on where they invest,” says Austin.
“That has resulted in some of the largest funds acquiring very little in the UK in recent years, and instead focusing on major overseas acquisitions.
“Mid-market funds are also building portfolios of international businesses. That often involves buying a single company as a foothold, and adding gradually bolt-ons to that group to grow a more substantial presence.”
In the last 12 months there have been 36 mid-market deals, with a total value of £4.1bn. Recent acquisitions of overseas businesses by UK private equity funds include:
- Sovereign Capital Partners’ £42m MBO of Asset Control, US based provider of financial data management software.
- Livingbridge’s £57m acquisition for Habit Group, the New Zealand based rehabilitation provider
- Inflexion Private Equity Partners’ £19m stake in European LifeCare Group, Europe’s largest provider of vaccinations, based in Denmark
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