Despite the UK’s sluggish economy and recent tax changes, it remains ahead of Switzerland and the US in terms of having the most attractive infrastructure, regulatory environment and tax regime for private equity firms to be based.
Investec’s research among senior private equity professionals currently based in the UK reveals that potential tax increases on capital gains and carried interest pose the greatest threats to the UK’s continued attractiveness as a base for private equity firms.
This was followed by the availability of debt to fund transactions and the EU’s directive on the regulation of alternative investments.
An overwhelming majority (95%) of private equity professionals believe that there are good opportunities for private equity funds to invest in UK companies, although almost three quarters (74%) say that these deals remain hard to find.
The study also revealed widespread concerns over the reputation of the UK’s private equity industry: 80% of respondents felt it needed to do more to improve its image in light of the Southern Cross crisis.
At last month’s Labour Party Conference, Ed Miliband stated that companies such as the nursing home operator exemplify the “wrong sort of business” and blamed private equity firms for trying to generate excessive profits while placing thousands of vulnerable residents in danger of homelessness.
However, a third felt the introduction of the much vaunted Walker Guidelines Monitoring Group had not improved the industry’s reputation.
In terms of what should be done to address its reputation, 78% thought the industry should better explain its role in supporting the economic recovery; 41% supported greater transparency and 17% thought there should be greater involvement in community care and charitable initiatives.
Simon Hamilton, Investec Fund Finance, comments:
“Despite continued concern around the reputation of the UK’s private equity industry, this research highlights its strength and resilience in the face of tough overseas competition.
"At a time when the UK economy is in desperate need of a kick-start, many private equity firms are helping businesses grow through operational improvements, providing finance and working with the management over the medium to longer term.
"However, the Government must do all that it can to nurture and support the sector to ensure that the UK remains a hub for private equity firms.”
Three quarters (74%) of those questioned think that the appropriate level of debt is available to fund transactions, and on terms that should still enable their fund to make good returns. However, one in five (21%) no longer believe that this is the case.
Paul Bail, Director of Debt Advisory, Investec Investment Bank, said:
“Despite continued market volatility, this research demonstrates that debt finance can be sourced for most private equity-led acquisitions.
"The availability of debt remains a key concern amongst private equity professionals, but for those mid-market businesses that demonstrate sound operational management, sensible leverage and a strong track record, our direct experience suggests that the debt market remains well and truly open.”
Investec Fund Finance has continued to be one of the most active teams in the market and closed eight transactions in the past two months.
These include providing a four year £14 million debt facility to the management of Clyde Blowers Capital to enable the management to co-invest in the Clyde Blowers Capital Fund III.
It has also provided a €15 million loan to F&C European Capital Partners LP to enable it to introduce a moderate amount to gearing to the fund and to also enable it to manage the investment inflows/outflows and smooth potential future draw downs.
The Investec Fund Finance team focuses on the financing needs of leading private equity funds and the professionals behind them. Investec offers a broad range of financing facilities tailored to the unique requirements of the private equity sector.
Typically, the loan sizes are greater than £5 million and can extend to between £50 million and £75 million at the higher end. The loans are usually structured against the private equity investments, management company cash flows or investor commitments.
Most competitive location for private equity firms
1 UK
2 USA
3 Switzerland
4 Luxembourg
5 Channel Islands and Isle of Man
6 Scandinavia
7 Netherlands
8 France
9 Germany
