For this, data is collected from all of our GP members on their aggregate investment activity and is used to produce the most comprehensive overview of the UK’s private equity and venture capital markets available. The activity report produced each year by the BVCA captures the aggregate investments, divestments, and fundraising information of the BVCA full member firms. The report details investment information that is broken down across industry sectors, financing and investment stages, and UK regions.
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The UK’s decision to leave the European Union and the outcome of the 2016 US elections have brought about a wave of uncertainty that continues to be felt across the entirety of the financial services industry. Despite the deep political rifts exposed both at home and abroad, the UK’s private equity and venture capital industry has continued to demonstrate its strength in the face of instability, with global investment by BVCA members at its highest level since the financial crisis, and the greatest amount divested in the industry since the BVCA began collecting data.
Brexit has not yet impacted global investment, which has increased steadily by over £4.5bn since 2015 across all geographies surveyed. On a quarterly basis, there has been little deviation in investments following the referendum, remaining steady at £5.9bn in Q1 and £5.8bn in Q4. Growth capital investment in the UK has increased substantially, growing from £993m in 2015 to just under £1.7bn this year. While UK VC investment dropped to £246m, VC represented 41% of all companies receiving PE/VC investment by BVCA members. The trend towards increased global VC investment also continued, nearly tripling from £104m in 2015 to £302m in 2016.
While London and the South East continue to dominate the investment landscape with more than £3.4bn invested, there has been a notable increase across the rest of the UK, with investment outside London and the South East making up 52% of total UK investment. The West Midlands experienced the most significant surge, with investments increasing from £288m in 2015 to just under £1.2bn in 2016. Investments in the East of England more than doubled to £781m while the South West and North East also saw substantial growth, nearly doubling to £508m and £70m, respectively.
There has been a notable drop in global fundraising by BVCA members, nearly halving from £12bn last year to just over £6.1bn this year. This is not unexpected, however, given the fall of the pound post-referendum, with firms seeking to develop their existing portfolio companies and deploy their accumulated dry powder. Another caveat to this figure is that this does not include a number of large global members who have completed successful fundraisings in 2016 but were not able to hypothecate this out to their UK office.
Conversely, there has been a marginal increase in fundraising from UK investors to £2.7bn, with UK pension funds raising the most money for the asset class since the financial crisis at £839m. The trend towards increased pension fund allocation is not just concentrated in the UK, representing a third of all global fundraising in 2016 at just under £2bn. This demonstrates that despite the overall fall in fundraising, the asset class continues to attract large institutional investors who recognise the potential for solid returns.
Another striking trend for 2016 was the record £29bn divested, exceeding the £21.6bn divested in 2014 as firms continue to return value to their investors. The most active exit route in 2016 was the sale of quoted equity post flotation at £12.3bn, followed by trade sales and sales to other private equity firms. The IPO market has also shown its continued strength, with flotations at their highest levels at £3.1bn.
With regards to investment by industry sector, 2016 saw consumer services more than double to £2.9bn, with health care also seeing similar increases at £869m. While high-tech investments decreased marginally to £916m in 2016, biotechnology has experienced an unprecedented surge, growing from £12m in 2015 to £200m this year.
While there is no doubt the industry will continue to be faced with the challenges of political uncertainty that lie ahead, private equity and venture capital has demonstrated its capacity to adapt to difficult times – a strength that is reassuring for the future. Enhanced portfolio management and operational improvements will be more important than ever as the industry continues to transform businesses, create employment and deliver returns.
Noelle Buckley, Director, Research, BVCA
Nastasja Vojvodic, Research Manager, BVCA
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