Figures from the British Venture Capital Association (BVCA) show a dramatic fall in UK buy-out activity over the past year.

Figures from the British Venture Capital Association (BVCA) show a dramatic fall in UK buy-out activity over the past year. In the first six months of 2008, £11.7 billion was invested, compared with £24.5 billion in the same period in 2007.

Britain is falling behind other countries in Europe as a favourable environment for buy-out firms, according to the European Venture Capital Association’s fourth Benchmarking Study. In 2003 and 2004, the UK was the number-one location in Europe with legal and fiscal conditions enabling private equity to thrive, but by 2006 it had sunk to third place. 

In the latest study, the UK ranked fourth out of 27 countries, behind France, the Republic of Ireland and Belgium.

Javier Echarri, secretary-general of the European Venture Capital Association, suggested: “It’s not so much that the UK has lost its competitiveness with wrong measures; it’s that other countries, like France and Belgium, have been doing so much more in order to attract this long-term capital, to retain entrepreneurs and retain talent.”

A recent Populus poll of BVCA members found that 32 per cent of buy-out houses had considered moving their UK operations offshore in the past 12 months, and 47 per cent were expected to reconsider such moves in the coming year.

The credit crunch may have turned off the tap for cheap debt on which private equity relies to finance its huge deals, but cash is still flowing into the industry. BVCA figures for global fundraising show that 372 funds have raised $323 billion (£183 billion) in the first half of this year.

Echarri said: “This crisis has found the industry well capitalised. Private equity is sitting on a lot of money now and is willing to invest in good companies over the next few years.”