UK’s lower middle market sees 40 private equity investments of £1.63 billion in the first half of the year, challenging pre-Brexit predictions of a slowdown

Despite heightened market uncertainty in the run up to the UK’s EU referendum, investor appetite for UK-based SMEs in the first half of 2016 was on a par with 2015, signalling that investor confidence is still strong.

As the uncertainty in the immediate aftermath of the referendum result starts to abate, confidence for investment in UK lower mid-market companies can be seen in the number of new investments since the vote, with 10 deals already completed since June 23rd, according to Lyceum Capital and Cass Business School UK’s Growth Buyout Dashboard. 

The study revealed that the volumes and value of new investments were consistent with the first half of 2015. The period saw 40 transactions complete, worth an aggregate enterprise value of £1.63 billion. Deal volume picked up in Q2 this year following a particularly slow Q1, with 23 of the 40 deals completing in April or later.

UK assets may also become more attractive to non-Sterling investors, considering that in the first half of 2016, 78 per cent of deals came from UK-based houses, a figure that may change if Sterling’s weakness since the Brexit vote continues.

Andrew Aylwin, partner at Lyceum Capital expect volumes in H2 to be lower than initially expected as investors assess targets’ prospects in this ‘new normal’. He adds, “the UK lower mid-market is set to shine again as a beacon of attractive investment opportunities, with the deepest pool of entrepreneurs and the strongest tech and digital economy hub in Europe.”

Scott Moeller, director of the M&A Research Centre at Cass Business School thinks it’s too early to predict the extent to which Brexit will affect the lower-mid market in the UK, but believes this portion of the industry is well placed to benefit from the new environment. “Given the asset class’s strong performance and track record throughout the years, we believe that lower deal prices could also signal an increase in foreign investment, giving the industry even more scope and capability,” he explained.

“UK private equity remains an attractive asset class that backs successful entrepreneurs who, like their investors, are resolute in the pursuit of their aims.”