Can PE ride the UK's race to the bottom?

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The Weekend Pitch

October 2, 2022

Presented by Deloitte

UK finance minister Kwasi Kwarteng
(Carl Court/Getty Images)

The British pound went into a tailspin and the FTSE tanked after the UK government revealed plans for a raft of debt-funded tax cuts. The chaos is shaping up as a chance for investors to snap up cheap UK assets, but the broader economic fallout of the economic plan, which was unveiled by British finance minister Kwasi Kwarteng on Sept. 23, could have a sting in its tail for bargain hunters.

The brief, hastily-compiled budget—which is being called a "mini-budget"—is the first for newly-appointed Prime Minister Liz Truss. It has been received with near-universal derision. At the time of writing, the pound has plummeted against the dollar and the Bank of England has intervened with a bond purchase program to prop up the economy and protect savings. Even the IMF has stepped in with a warning.

It is hard to predict what the next few days and weeks will bring. Already, PE investors are expected to take advantage of a weaker pound and falling public market valuations, as they did after Brexit. But higher interest rates, difficulties accessing debt and an overall drop in confidence could temper those dealmaking prospects.

I'm Andrew Woodman, and welcome to The Weekend Pitch. You can reach me at andrew.woodman@pitchbook.com or on Twitter @adwoodman.

For now at least, the UK government is sticking to its guns. During media rounds in the wake of the budget, Truss and Kwarteng have remained unrepentant and say they are convinced their policies—which overwhelmingly benefit the country's highest earners—will spur growth. Some have likened it to "trickle down" economics, made famous by US President Ronald Reagan and his UK counterpart Margaret Thatcher (a political hero of Truss), four decades ago.

Quote/Unquote

"The unicorn IPO is probably not on the table for most companies after a down round, but buyout firms come in and buy companies that are strong underlying businesses that just need to be restructured."

—Kyle Stanford, a senior analyst at PitchBook. Our data shows that nearly 1 in 5 of the companies that raised a down round since 2016 took the buyout path.

Deal flow

(Travers Lewis/Shutterstock)

UK-listed companies have been involved in 10 PE-backed take-private deals this year, worth a total of €14.59 billion (about $14.3 billion), according to PitchBook data.

Last week, Biffa, a UK-listed waste management specialist, accepted a discounted buyout offer of £1.3 billion (about $1.4 billion) from US-based Energy Capital Partners.

Did you know ...

Procida Island, Italy (Marco Bottigelli/Getty Images)

… That Satispay, a payment network provider, became Italy's second unicorn with its €320 million (about $311 million) Series D last week?

While Italy has the fourth largest economy in Europe, the country's VC ecosystem has historically trailed peers like Spain and France.

Datapoints

(Wirestock Creators/Shutterstock)

Mubadala, a United Arab Emirates wealth fund, participated in 157 direct investments in 2021, spanning buyouts, growth equity investments, seed investments, and early- and late-stage VC. That figure is a significant increase from just 45 the year prior.

We took a closer look at how the sovereign investor is likely to attain better yields as a GP, instead of seeing its profits eroded by management fees and carries.

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A "Black tax" costs US cities millions they can't afford. [Bloomberg]

Well, that's one way to save a space telescope from falling back to Earth. [The Atlantic]

Prison calls are wildly expensive. California just made them free. [Protocol]

This edition of The Weekend Pitch was written by Andrew Woodman and Priyamvada Mathur. It was edited by Chris Noble and John Moore.

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Can PE ride the UK's race to the bottom?

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