Private equity funding up 25 per cent for SMEs

Data from The UK Growth Buyout Dashboard – a quarterly trend analysis of PE transactions in the £10m to £100m segment produced by Cass Business School and Lyceum Capital – shows 12 companies raising around £590m of buyout funding during the period. 

This compares with 15 transactions and £474m in the previous quarter (April to June), when activity spiked in the run-up to the Emergency Budget and the anticipated capital gains tax increase. 

Average deal value rose to £49.1m, up from £36.9m in the previous quarter.

The report’s authors say the figures provide further evidence that business owners and entrepreneurs (many of whom are thought to have mothballed plans during the downturn) were returning to the market to realise value or secure growth capital for expansion.

Yet despite clearly indicating a sustained recovery in smaller growth buyouts, the study also shows that activity remains significantly below peak levels seen pre-credit crunch.

Commenting on the findings, Andrew Aylwin, partner at Lyceum Capital, says he wouldn’t be surprised to see PE investment levels continue on their upward trend over the next three months and into 2011.

“It’s still not the fast and furious recovery many might hope for, but it’s a steady return to form for the sector’s lower mid-market and a clear signal of confidence in the asset class’s enduring ability to create value for investors,” he says. 

So which sectors are leading the charge? Perhaps unsurprisingly, it’s the private equity “heartland” sectors, with the majority of companies raising capital operating in business support services and retail and consumer. Notable examples are stationery retailer Paperchase and specialist outdoor retailer Snow & Rock Sports.

In fact, since July 2008, 36 per cent of companies attracting investment operate in the field of business support, followed by retail and consumer (18 per cent) and healthcare (14 per cent).

Scott Moeller, director of Cass Business School’s M&A Research Centre, warns that the market is still fragile, however: “We will need to watch closely over the next quarters for continued strength in this lower- to mid-market sector, which has traditionally been one of the strongest sectors for PE activity. But this does feel like a consistent and predictable trend with the amount of investment and to a certain extent exit activity gradually returning towards a more normal and sustainable level.”

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