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US buyout funds snap up cheap UK firms for £14bn

Cobham UK defence firm

US private equity buyouts of UK firms jumped by more than half last year to £14.2bn, as Brexit and election uncertainty depressed the value of British companies.

The value of the deals US buyout firms struck in Britain lifted by 53 per cent last year compared to 12 months ago, according to data from law firm Mayer Brown.

“The relatively depressed valuations of UK companies versus their European peers has made them look to be particularly good value for US-based private equity funds,” said Mayer Brown.

The FTSE100 rose just 4 per cent last year, compared to the FT EuroFirst 300 Index which lifted 15 per cent over the same period.

Notable sales last year included Boston-based buyout group Advent International £4bn takeover of British FTSE 250 traded defence firm Cobham approved by shareholders in September, and Chicago-based Thoma Bravo £3bn acquisition of British Cybersecurity firm Sophos sealed in October.

 

Other foreign funds take advantage of depressed UK valuations

Other funds around the world have also taken advantage of cheaper prices for UK firms, the report said.

The value of deals closed by European Union-based private equity funds rocketed to £1bn last year from just £42m in 2018, while acquisitions by Chinese buyout funds hit £515m, “up from a negligible value in the previous year”, the survey said.

Lower values for UK firms could continue into this year “as negotiations over the UK’s trade deal with the EU rumbles on,” according to the report.

Mayer Brown, partner and co-Head of the Global Corporate & Securities practice, Perry Yam said: “There are still plenty of buying opportunities in the UK for private equity funds. They can continue to draw on record levels of dry powder and access to debt is as abundant as ever.”

He added: “But don’t expect the M&A market to suddenly race ahead. Valuations still need to be sensible and well-founded for private equity funds, and the last 12 months has seen weak trading for the UK economy – denting earnings’ growth and stretching valuations. Sellers will need to reflect that in their asking prices.”

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Roger Baird

Roger Baird is News Editor at Finixio. He has worked as a financial journalist for 20 years reporting on companies, capital markets and the UK economy.