UK deal making scales to 14-year high as PE firms scramble to deploy dry powder

Private equity firms scrambling to deploy a wave of dry powder amassed before the Covid-19 crisis has lifted UK takeovers to their highest level in 14 years, reveal new figures released today.

The overall value of deals involving UK companies jumped 10 per cent to $630.8bn this year, the highest print since 2007, according to data from Refinitiv.

The volume of deals climbed 39 per cent to 6,926 in 2021.

Access to cheap financing amid a record low interest rate environment, compounded by depressed equity values on London markets, has encouraged private equity firms to deplete their vaults of dry powder and snap up British businesses.

In total, private equity firms launched 781 takeovers targeting British businesses this year, the highest since records began in 1980, worth just over $85bn.

UK companies listed in London have become targets by buyout firms due to their shares often trading at a discount compared to US and European shares.

Low valuations have even boosted the attractiveness of large British companies, which require a sizable amount of funding to buy.

British supermarket giant Morrisons was purchased by US private equity giant Clayton, Dubilier & Rice for £7bn this year.

The news was first reported by The Times.

Experts said the factors driving the UK deal making frenzy will extend into the coming year.

“Despite the pandemic wearing on, the ingredients of capital availability, improving market conditions and financial market enthusiasm, coupled with dealmaking appetite (whether stable or distressed) look set to contribute to a continuation of the deal frenzy,” said John Farrugia, managing partner at broker finnCap.

“The year ahead will continue to be an uncertain and perhaps unprecedented one, yet the key ingredients are there for another flurry of significant M&A activity,” he added.