Brexit will bring more taxation from the government
Anthony Pitcher, director at LGL Trustees, also says the relentless pace of private equity consolidation will continue.
How will Brexit uncertainty affect sales of UK private equity backed businesses?
Markets don’t like uncertainty in any aspect and so lower valuations on the back of it. It is also making business planning more difficult. Finally, governments see lower tax take as a result of the economic impact of Brexit, not just the UK, and are likely to bring in tax raising measures that might impact clients. However, there will be opportunities for arbitrage as European rules no longer apply in certain circumstances.
Are corporates willing to spend more money than private equity companies?
The stock market is currently valuing the profits of trust businesses at very high multiples. As we see round after round of acquisitions of the same businesses there needs to be an exit point, and this currently appears to be acquisition by a corporate or quoted business. This only works for as long as these end purchasers are prepared to pay more for the businesses than private equity. The reason this is achievable is that private equity can buy businesses that are smaller than the corporate or quoted buyers.
Is bank debt difficult to obtain for private equity houses and does it impact investments and returns?
Private equity houses are funded through investor commitments and don’t generally rely on bank debt. There is no sign of there being a shortage of available debt because investors seek yield.
The introduction of the new EU state aid rules has restricted the activities of venture capital trust managers. What affect will that have?
Not much. Private equity businesses aren’t finding it difficult to fund their acquisitions in general. There are always difficulties for younger companies as they don’t have the track record to support their finance.
What trends do you see in the private equity sector?
The relentless pace of consolidation continues and will continue for the foreseeable future. When the merry go round stops it will be difficult for some parties.