Exclusive: Private equity firms strike £ 10bn exclusion deals as pandemic leads to sale of non-essential units
Private equity firms made £ 10.1bn of exclusive acquisitions in the UK last year, up from just £ 765m in 2019, as the Covid-19 pandemic has pushed more than ” companies selling non-core business units, according to new data shared with City AM tonight.
The economic disruption of the past year has forced many large companies to focus much more on their core businesses, leaving them much more open to sales of less strategically important business units, the law firm Mayer said. Brown.
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The legal giant has found that private equity funds with significant capital to deploy have been a major beneficiary of increased corporate interest in divestments and have often been bidders in such auctions.
This includes the large US private equity firms, which were involved in the four UK business exclusion deals worth over £ 1billion reached by PE buyers in 2020, inlucding Viridor Waste Management, bought by KKR and Hermes from Pennon for £ 4.2 billion. , Coty, acquired by KKR for £ 2.1 billion, the infrastructure division of GTT Communications, acquired by I Squared Capital for £ 1.6 billion, as well as the international unit of CDK Global, for which Francisco Partners paid around £ 1.1 billion.
The pandemic may also have played a role in the increase in the number of UK carve-out deals made by PE funds. Last year, 14 such deals were closed, compared to just six in 2019 and seven in 2018, according to Mayer Brown.
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Large listed companies were involved
Several of the business exclusions supported by PE in 2020 involved large listed companies, which may have accelerated their restructuring programs due to the pandemic.
These agreements included the divestment by Ferguson of its Wolseley division in the United Kingdom, as well as the sales of Capita and Saga.
“The pandemic has triggered an intense focus on the core businesses of many companies. Even in the best of circumstances, business units within companies must compete for managerial time and finances. Those business units lower on the priority list could be sold much better to another owner, ”said James West, partner at Mayer Brown.
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“With PE funds keen to make deals, exclusions continue to make a lot of sense for both parties,” West said. City AM
He added that another important determining factor is cash flow management for some businesses due to nearly 12 months of Covid-related restrictions and business disruptions.
“Companies also see exclusions as an opportunity to get rid of business units that are underperforming and don’t have time to fix,” West continued.
“Listed companies may also see it as an ‘addition by subtraction’ – a way to improve their stock price by divesting parts of the group that investors are less interested in, which could attract a lower multiple to the rest of the group. business, ”he explained.
“Some PE houses in the US have been particularly active in seeking UK standoff deals over the past year, as they seek to use some of the firepower they have. accumulated. The coming year will likely see another wave of these deals as corporate restructuring programs continue, ”West concluded.
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