By Charlie Conchie
The number of private equity deals closed in the UK has slumped 20 per cent in the past year as firms sit on cash reserves in anticipation of tumbling valuations, according to new research.
Acquisitions of UK firms by private equity houses has fallen 20 per cent to 440 in the year to September, down from 550 the year prior, according to research from ADDX, a digital exchange for private markets.
Just 80 UK deals were completed in the final three months of the year to September, a fall of 34 per cent on the 121 acquisitions completed in the previous three months and a 42 per cent slump on the 137 acquisitions closed in the third quarter of 2021.
It comes amid a wider slowdown in European dealmaking as transactions fell to 2,211, down from 2,361 the year prior.
Valuations have been tumbling amid a rocky period on the markets, but bosses at ADDX said a flurry of deals is yet to come across Europe as investors prepare to pounce on opportunities to buy firms on the cheap.
“Some PE funds have started to put deals on pause as the economic cycle turns and they wait for sellers’ expectations to catch up with the economy,” she said.
“With inflation still above eight per cent across much of Europe and central banks tightening credit, funds are expecting that valuations on transactions are going to fall.”
She added that investors are hoping that continue to fall and firms deliver the returns seen by 2009-vintage funds who bought up stakes in firms in the wake of the financial crisis.
“Being able to acquire businesses at unexpectedly low valuations during periods of economic stress is a key driver of elevated returns after the economy bounces back from a trough,” analysts at ADDX said.
The UK has already been hit by a wave of foreign private firms looking to snap up listed companies on the cheap.
Ted Baker is among the firms to be picked off, while tech firms including Darktrace and Aveva fell into the sights of foreign buyers. The Darktrace deal later fell through, but French industrial group Schneider Electric is still pursuing a full takeover of Aveva.
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