The role of private equity in supporting shareholder ambitions

26 October 2021 4 min. read
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Sam Forman, an Associate Director at Gambit Corporate Finance, reflects on the role private equity firms and investors can play in supporting shareholders with realising their ambitions.

The pandemic has disrupted and impacted financial markets across the world with the UK falling into a recession in 2020, the first since the Great Recession in 2008-09. Compared to more recent recessions, economic activity fell sharply but has seen a V-shaped like recovery as lockdown restrictions have eased. 

Another key factor of difference to more recent recessions is the continued availability of capital. Direct government support programmes and indirect schemes through banks and third-party funders such as the Bounce back loan scheme, Coronavirus (and Large) Business Interruption Loan Scheme, Covid-19 Corporate Financing Facility and the Future Fund to name a few have ensured businesses have access to funding to weather the storm and return to growth. 

Sam Forman, Associate Director, Gambit Corporate Finance

In addition to the above, private equity firms have a record level of capital to deploy with an estimated $1.9 trillion of investable funds, with wider fund types including venture capital, real estate and infrastructure funds topping $3 trillion. That compared to a total aggregate market capitalisation of circa $2.6 trillion for the FTSE 100 index.

The pandemic has not slowed funding allocation to private equity managers at the same pace of other asset classes which has kept investors flush with capital. It did however cause a 6-12 month delay and decrease in capital deployment as fund managers assessed the short and long term impact of Covid-19 on economies and business sectors.

Given the more severe disruption in travel (commercial and business travel), leisure and hospitality compared to sectors such as technology and healthcare, the scope of deployment has also shrunk. This has left a record level amount of funds chasing fewer assets and needing to catch-up on time lost investing at the start of the pandemic. 

Private equity activity and valuations in the UK are benefitting from such trends with Q2 2021 deal volumes up 51% compared to Q2 2019 and EBITDA multiples nearly 2.5x higher year-on-year at 13.2x in Q2 2021.

Quality assets with positive sector trends, growth opportunities and capable management teams are being highly sought after and benefitting from significant competition amongst investors, both looking to deploy capital directly and indirectly via buy-and-build platforms as a means to invest available funds. 

Fast growing companies such as Learna, which provides online post-graduate medical courses, recently secured investment from Harwood Capital and solidboard and corrugated packaging producer, Heathpak was acquired by Dutch-based Solidus in a deal funded by Centerbridge Partners. 

There is now an abundance of funds across all areas of the market, sectors and geographies with private equity no longer an option only suitable for mega-deals. Investment can be used to realise value created and provide an exit or de-risk shareholders, fund business growth, pursue value-enhancing acquisitions and often brings an experienced investment team as a partner that can provide support and expertise to the boardroom and accelerate and augment future value creation. 

Veezu’s recent funding from MML Capital (which also owns a stake in consultancy Zanders) will support its continued investment in technology and automation, provide capital for future bolt-on acquisitions and access to MML’s DataSparQ which will see the company leverage its data and analytics through AI to improve business decisions and performance. 

Current market characteristics make it a favourable time for shareholders and management teams to consider growth and succession plans, heightened by a possible change to Capital Gains Tax rates in the upcoming Budget. 

Understanding fund characteristics, approach, sweet spots and how best to present an investment case are vital to securing a desirable outcome, both on day one and any future realisation event. Working alongside experienced advisers can help navigate sourcing investment and executing a deal making sure stakeholder interests are protected and key objectives met, maximising value and opportunity in the short and long term.