Private equity investment in British mid-sized companies hit a new record in 2021, despite uncertainty from the pandemic and the shaky economy.

Both volumes and values of mid-market private equity investment saw a boost, as a total of 803 deals, worth £46.8bn were completed in 2021 – an increase of 40 per cent and 36 per cent, respectively.

The levels of mid-market private equity activity seen in 2021 still surpassed pre-pandemic levels, with deal volumes up 20 per cent and deal values up 15 per cent compared to 2019, according to KPMG.

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The UK’s private equity market overall also thrived, with a total of 1,545 deals worth £159.2bn completed in 2021, up from 1,117 in 2020 and 1,246 in 2019.

Jonathan Boyers, head of KPMG’s UK corporate finance practice, said: “The UK’s private equity market saw a dramatic return to form in 2021, as confidence returned and pent-up demand was released.

“The momentum we saw at the end of 2020 continued to gather pace into the first half of 2021, and while activity dipped slightly throughout the rest of the year, the levels maintained were still a record high.”

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Boyers said that dealmaking had been particularly strong in the technology, media and telecoms sectors, technology-based business services, consumer goods and retail.

KPMG said the allure of technology, media and telecoms businesses “held strong” thanks to remote and hybrid working, with 2021 deals up by 55 per cent.

“In line with heightened activity in online retail and direct-to-consumer sales, consumer goods and retail, deal activity also saw an increase,” it said.

Buyers warned that “some clouds have began to gather on the horizon” at the end of last year, with inflation, supply chain problems and the Omicron variant weighing on confidence.

Mid-market exits cool but values remain hot

The number of private equity sales fell from 178 in 2020 to 162 in 2021, though this still surpassed 2019’s levels of exit activity. Deal values, however, increased by 13 per cent, from £13.6 billion to £15.4 billion.

Boyers said: “Business and investor confidence picked up swiftly towards the end of 2020 and this optimism, along with a rush to finalise deals before the anticipated changes to capital gains tax, drove a flurry of activity.

“There is also a noticeable and growing imbalance between the number of new investments and exits being made and there will need to be a correction at some point, though this is unlikely to happen while the market remains particularly volatile.”

Further reading

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