Kingston Smith

UK growth capital market performs steadily in Q2 2016

  • Institutional fund managers broadly upbeat post-Brexit
  • Technology and on-line sectors prove their resilience and forge ahead

Q2 2016 reflects that institutions have a significantly bigger appetite for deals as opposed to individual funders. The number of non-institutional transactions fell from 42 to 28 compared to the same period under review. This decrease is evident in the deal value figures, with 2016 Q2 at £105m compared to £125m for 2015 Q2. Institutional deal values remained steady with a marginal increase from £209m (Q2 2015) to £213m (Q2 2016).

Jonathan Garbett, Director at Kingston Smith Corporate Finance comments, “2015 was a record year for this market and so far, 2016 is not far off with £678 million raised in the first half. There is no evidence that we can see of a reduction in deal activity post-Brexit.

“Speaking to fund managers generally and having taken deals to market post-Brexit, we have seen a ‘business as usual’ approach although specific sectors may experience delays due to market uncertainty.  Overall though, the investor attitude seems to be one of continuing to look at new opportunities as they arise and to invest where the case is strong in terms of growth and returns.

“The sectors that continue to dominate growth capital activity, being technology and on-line and in particular business-to-business software and on-line offers, do not appear to be directly affected. Many of these businesses have global strategies with competitors in North America and Asia. For them UK/EU regulatory matters and short-term consumer spending patterns do not impact on current trading or long term forecasts. Investing institutions continue to have billions of ‘dry powder’ that needs to find a home.

“As a result of these factors we believe that we will continue to see substantial activity in this growth capital market through the rest of 2016.”

Growth Capital statistics

2014 2015 2015 Q2  2016 Q2
Value of institutional transactions (£ million) 741 890 209 213
Value of non institutional transactions (£ million) 417 547 125 105
Total value of transactions (£ million) 1,158 1,437 334 318
Institutional transactions (number) 177 190 43 41
Non institutional transactions (number) 112 170 42 28
Total number of transactions 289 360 85 69


Sector transaction review

The technology (including software and digital) and on-line B2B sectors still dominate, with around half the transactions falling into these two sectors. “Basically if you are not tech or on-line in some respect or do not have a genuinely disruptive model in traditional sectors you might as well pack up and go home,” comments Garbett.

Outlook for 2016

Having spent the past few weeks discussing the impact of Brexit in the fund raising markets, we’ve noted that while deals are continuing to go ahead, additional attention is being given to business risk and portfolio investments may experience a short term downturn.

It is difficult to make any specific predictions in terms of H2 2016 however we expect that transactions in process will be closed out wherever possible and institutions in particular continue to have appetite for quality investment opportunities. Therefore we expect there to be continued substantial activity in this market.