“The taps have been turned back on” was the message last year for mid-market private equity-backed buy-outs. However, 12 months on we’ve seen a reduction in completions in the £10m-£100m range, with an average of 167 deals per year in 2016 to 2021 dwindling to 111 deals in 2022, and just 47 in the first half of 2023. 

It’s not just the UK that’s suffered. In the US, Bain & Company’s 2023 PE outlook report Anatomy of a Slowdown identified inflation and interest rates as the chief culprits in a “challenging year” where more time was spent fundraising and less time completing deals.

“But it’s not all doom and gloom,” says Harriet Matthews, funds editor at Mergermarket. PE partners “are looking for creative ways to deploy, be it via take-privates, carve-outs, or tapping family-owned businesses that might be reassessing their options”. She adds that the mid-market is not facing the same financing woes as the large-cap space, but the gap between buyer and seller valuations – as well as uncertainty around deal execution – “remains a theme”.

“Fundraises are taking longer,” she says, “particularly with a swathe of GPs raising megacap funds this year. Now, more than ever, GPs need to stand out and convince potential investors they have a reason to exist and a truly differentiated strategy.”

Malcolm Coffin, partner and head of enterprise fund for Inflexion – one of the top 10 UK dealmakers – says: “Mid-market remains a competitive landscape, and we are seeing the age-old flight-to-quality picking up. It’s not just the number of deals getting done that’s changing, but how they’re getting done. Nowadays buyers need to really understand the sub-sector and its drivers for the years ahead and bring support to accelerate growth of the businesses backed.”

That professionalism and growth is often a stage on a company’s journey to IPO or secondary sale, as well as a source of profit for the PE houses. To achieve this in the face of higher interest rates, Coffin sees “the advisory community remaining skilful in giving business owners the confidence that for great businesses with clear future growth pathways, there are committed buyers out there wanting to partner with them on the next chapter of their growth story”.

1: LDC

LDC remains the most active PE house with 77 deals since 2016, almost three times its nearest competitors. The private equity arm of Lloyds Banking Group has offices nationwide, and has invested in more than 50 sub-sectors. It has a target of giving new backing to 100 medium-sized UK businesses over the next five years. To support this, the firm recruited nearly 30 new employees in 2022. 

A typical deal was that of Horsefly, the Merseyside-based AI talent analytics platform, backed in the £25m-£50m bracket. LDC says its involvement can help Horsefly break into the US market. Investment manager Jacob Leone says: “Its experience in helping companies scale up operations will be invaluable.”

LDC’s 10 exits in 2022 averaged a 2.6x multiple. CEO Toby Rougier said: “Despite continued political uncertainty, I’m proud we were able to deliver much-needed capital and support to management teams with big ambitions for growth.”

2: Inflexion Private Equity

“Our investment into TC Group illustrates our transaction style,” says Inflexion’s Malcolm Coffin. “The accountancy sector is ripe for consolidation. TC’s differentiated business model enabled it to complete 28 acquisitions prior to our partnership, aligning with our thinking on how it can grow market share, with a strong pipeline of opportunities already mapped out.”

Inflexion manages £8bn for more than 70 investors; its £2.5bn buy-out fund invests in businesses up to a £1bn valuation.

3: Livingbridge

The London-based firm has had a quiet 18 months in the buy-out space, after completing seven deals in 2021. Utilising its £1.2bn Fund 7, Livingbridge looks to “thinking-type businesses”, according to its head, Wol Kolade. Deployments are focused on UK targets, but an increased Australian presence is leading to transactions there too, and the company’s US team aims to help portfolio companies with growth and expansion.

Explaining his firm’s investment strategy, Kolade says: “While strategic add-ons can deliver enhanced returns, we have become more focused on transformative opportunities, and this will underpin our approach to value creation.” 

Partner Susie Stanford adds: “Given the market volatility experienced in 2022 and continuing into 2023, we expect that minority equity solutions will see heightened demand, with founders looking for tailored solutions. We also expect founders to look for partner firms with the track record, know-how and confidence to help them continue to grow by smartly navigating these complex times.”

4: RCapital

Specialising in turnarounds for stressed or “difficult” businesses (its sales pitch is: “We see the potential in complex situations”), RCapital has seen a steady stream of buy-outs in recent years. With a tally of seven deals in the past 18 months, it would be second behind only LDC in terms of recent activity.

Sector agnostic, but with investments skewed towards the support services and industrial engineering sectors, RCapital’s COO Phil Emmerson says: “Every turnaround is unique, and our team has the skills and experience to handle each type of situation to restore profitability and to sustainably return to growth.”

5: Endless

Endless’s £400m Endless V fund backs businesses that “do not meet the investment criteria of traditional private equity or bank funding”. This, as well as its £150m SME fund, has specialised in investing in food producers and general retailers, perhaps as a result of cash-flow pressures on otherwise worthwhile companies in these sectors.

Birmingham-based Endless currently has more than £1.5bn under management, a portfolio of businesses with turnover in excess of £3bn, and which employ more than 24,000 people. In the past year it has acquired KTC Edibles, Yorkshire Premier Meat, Cardowan Creameries and Smithfield Murray.

6: NorthEdge Capital

NorthEdge manages £900m of funds, investing in technology, healthcare, business services and specialised industrials sectors. 

The mid-market specialists completed a primary MBO into London-based software-as-a-service company Cezanne HR in March this year. “Technology continues to be a core focus for NorthEdge, with this investment representing our 11th investment in the sector in the past five years,” says NorthEdge director, Dan Matkin. Headquartered in the North, with bases in Manchester, Leeds and Birmingham, NorthEdge says: “We understand the engines of the regional economy because we are one.” 

The private equity firm’s focus is on established, profitable businesses with more than £5m turnover that are looking for between £2m and £50m in investment.

7: Palatine Private Equity

Palatine’s particular focus is on sustainability and ESG-aligned businesses, and it has maintained a steady deal flow since 2016. 

Headquartered in Manchester, with offices in London and Birmingham, Palatine’s Impact Fund has a mandate to invest “up to £25m in companies that are creating social or environmental change and tackling some of the biggest issues in society”. 

One such recent investment was in Manchester-based waste management and recycling company, Roydon. Greg Holmes, Palatine’s Impact Investment Director, says: “Roydon is a proven market leader in developing innovative waste strategies, audits, consultancy and management. It is great to welcome a company with such an aligned mission to our Impact Fund, as we continue to deliver returns with purpose.” 

As well as the Impact Fund, Palatine is also managing its £250m Fund IV.

8: Tenzing Private Equity

Tenzing, the London-based tech (and tech-enabled) investor, aims to “provide ambitious entrepreneurs with a compelling partner for the most exciting stage of their growth journey”. Tenzing manages a £200m debut fund dating to 2017, with a follow-on £400m fund raised entirely virtually in 2020. A further £150m fund allows investment into existing portfolio companies.

Recent dovetailing investments include accountancy firm DJH Mitten Clark and SME accountancy services provider Gravita. Tenzing’s Investment Lead, Milan Kellner, says its most recent investment, in psychometric testing platform Saville Assessment, allows it to “share our extensive expertise in the human capital management market”.

9: Synova

Synova’s rise in the rankings has been fuelled by deals in the software and computing space. 

Following a buy-out of his digital language training company, Learnlight co-founder and CEO Ben Joseph said: “Synova’s deep knowledge of commercial growth strategy and international markets will help drive the expansion of our global footprint.”

Synova typically invests between £15m and £150m into companies valued between £20m and £250m in the UK and EU. It manages more than £1.7bn of capital and is currently actively investing the £875m Synova V fund, raised in 2022.

10: August Equity

August Equity mainly invests in service-orientated companies, with its most recent deal being the MBO of StarTraq, an Oxford-based business developing compliance software, with August’s managing partner David Lonsdale saying: “This aligns with our focus on primary buy-outs of B2B software and services businesses.”

August raised its fifth fund in 2020, looking to deploy the £300m raised in 10 investments of between £15m and £40m each. There is speculation that a sixth, £400m, fund is on the way.