The London team at Ropes & Gray has made some predictions for the private equity market in 2018, against the backdrop of market uncertainty caused by a range of factors including Brexit.
Phil Sanderson (pictured), private equity partner at Ropes & Gray, says: “M&A in the UK will remain resilient – doing deals will be a distraction from the protracted Brexit goggle-box.
“Funds are still being raised into an already saturated market. The market needs more good opportunities and sellers will still be in charge as a result. What is more, sellers will be able to sell a more credible story of sustained growth post downturn than in the recent past. Sellers will also want to get into the market in H1 before any certainty starts to form around Brexit. So, the first half of 2018 is likely to be very strong; the second half is less clear.
“The businesses that will continue to attract most interest in the UK will be platform businesses with scope for international expansion – all the more so given the currency fluctuation uncertainties and the desire to hedge. The consumer sector will remain weak – with the exception of resilient brands or those with market positioning that offer embedded or growth value – but I expect to see continued activity in the tech and healthcare sectors, especially devices / software.”
Kiran Sharma, private equity partner at Ropes & Gray, says: “We will continue to see more minority deals in 2018, whether as a result of founders/family businesses looking for strategic growth capital or liquidity without losing control, or consortia deals to spread risk or access strategic value – such as the inclusion of Asian investors to assist the tapping of those markets. The abundance of cash available to invest means funds will continue to have a diversified approach in how they look to deploy that capital.
“With markets still riding high, P2Ps are likely to remain a smaller part of the market, but the relative sluggishness of sterling and the existence of companies, particularly on the AIM market, with long term strategies or requirements for capital not aligned with being listed will mean opportunities continue to exist, particularly for special situations investors.”
Malcolm Hitching, acquisition finance partner at Ropes & Gray, says: “We’re likely to see the continued rise of debt funds in many segments of the private debt markets. A number of funds are now able to write cheques of a significant size if required, meaning that they are relevant to a greater number of deal opportunities that were the preserve of traditional banks. The implementation of the ECB’s leveraged finance guidelines is only likely to exacerbate this trend, as the guidelines may act as a break on European banks lending into more aggressive structures.”
