Value of private equity deals by HNWs jumps six-fold, from £132m to £958m during the pandemic

The value of UK buyout deals by high-net worth investors (HNWs) shot up by 626% in 2020, rising from £132m in 2019 to £958m, says Boodle Hatfield, the leading private wealth law firm.

The increasing number of buyout deals led or co-funded by HNWs goes against the overall decline in deal value across the wider private equity market over the same period.

Whilst many trade buyers and to a lesser extent PE firms have stepped back from making acquisitions during the worst of the COVID crisis, HNW investors have used the crisis to buy distressed businesses at a substantial discount.

Private equity deals by HNWs increased from 26 deals in 2019 to 27 deals in 2020. In contrast, last year there was a 26% decline in combined deal value for UK private equity deals, according to research from a KPMG report. Overall UK private equity deal volume hit its lowest level since the 2008 economic crisis, falling from 1,200 deals in 2019 to 899 in 2020.

Boodle Hatfield explains that HNWs have been increasingly interested in leading PE transactions themselves as a way to get access to the asset class without having to pay the management and performance fees that investing through a private equity fund would involve.

Boodle Hatfield’s research shows retail companies accounted for 33% of all HNW-backed private equity deals in 2020. Other sectors popular amongst HNW investors were tech, housebuilding and transport.

Kyra Motley, Partner at Boodle Hatfield, comments: “Depressed valuations at the start of the COVID crisis have proved to be a once in decade opportunity for HNW investors.”

“Theoretically a HNW should be able to move quicker on a transaction than a PE house or a trade buyer as they do not have to go through as lengthy a due diligence process or seek approval from an investment committee.”

The six-fold increase (£132m in 2019 vs £958m in 2020) in the value of deals backed by HNWs in 2020 was largely caused by the £800m deal for a luxury five-star London hotel. Even so, excluding this, the value of deals in 2020 increased by 20% compared to the previous year.

With lockdown restrictions easing, it’s anticipated that acquisitions from conventional trade buyers and PE funds will increase this year. Even so, the trend of HNW-backed private equity deals is unlikely to be one that ends soon.

Adds Kyra Motley: “Successful entrepreneurs who are cash rich from exiting their own business are often driven to replicate their first success by buying and building a new business.

“They’ll be looking to pick up assets in the medium-term, particularly with the huge number of distressed assets likely to come onto the market in the second half of the year as Government financial support schemes, such as furlough, come to an end.”

Among the 27 buyout deals by HNWs last year were:

• Charlton Athletic, the London-based football club, bought by Danish billionaire Thomas Sandgaard
• The Ritz Hotel, bought by Qatari businessman Abdulhadi Mana A Sh Al-Hajri
• Moss Bros Group, the retailer bought by a group of investors including entrepreneur Anna Kentros.

This article was first published in The Guardian, Wealth Adviser and Private Equity Wire in May 2021.