The UK private equity industry has developed a considerable international footprint and is one of the largest private equity markets globally, second only to the US.
The UK financial and professional services industries are major contributors to the UK economy, accounting for 8.5% and 3.6% of GDP respectively. There are close to 35,000 financial services firms and 155,000 professional services firms in the UK, employing some three million people.
The UK, and London in particular, is arguably the world’s pre-eminent financial centre, providing a global hub for international institutions, firms and investors.
The strength of the UK’s global financial services industry has been a key driver in the development of the UK private equity industry into a leading international market. Investors have benefited strongly from their access to an international banking industry and a pool of highly-skilled personnel within the UK’s well-established financial and professional services sectors.
The UK private equity industry has grown steadily since the early 1980s with equity invested by UK private equity firms into unquoted businesses growing significantly to reach almost 22 billion in 2006. Over the past six years, private equity funds have raised over 95 billion of capital for investment into unquoted businesses, 34 billion of this in 2006 alone.
On the back of this long-term growth, the private equity industry itself is playing an increasingly significant role as a revenue generator within the financial and professional service industries, contributing to the overall impetus that these sectors provide to the UK economy.
It is not only the pool of businesses that receive private equity backing that positively benefit the UK economy, but also the private equity firms themselves and their associated network of advisors and other supporting organisations.
In total, there are close to 15,400 highly-skilled professionals across more than 1,500 firms engaged either directly or indirectly in private equity-related activities. There are currently almost 450 private equity, venture capital, fund-of-funds and secondaries investment firms in the UK, employing more than 9,300 people, of which 6,100 are highly-skilled professionals.
In addition to this, the UK has an estimated network of over 1,000 financial, professional and business services firms providing advisory and financial support to private equity houses. They employ a full-time equivalent pool of close to 9,300 executives.
The ‘multiplier effect’ of the UK private equity industry is considerable. For every private equity executive investing directly in UK companies, there are 2.2 full-time equivalent advisors or finance executives providing specialist advice and services. Furthermore, each of the supporting industries providing services to the private equity industry has its own support network of professional and business services firms.
For firms operating within the UK’s financial, professional and business services sectors, the private equity industry has become a significant source of income, generating an estimated fee revenue of over 5.4 billion in 2006. This equates to more than 12% of the total annual turnover of the UK financial services industry and average annual fees of 580,000 per executive working on private equityrelated mandates.
Almost 4.2 billion of this total was generated by corporate finance and accounting firms, banking and finance providers, and legal services firms, which form the backbone of the private equity financial and professional services support network.
Specialist due diligence providers, as well as broking and equity capital markets teams generated more than 400 million in fees during 2006, largely in relation to advisory services provided during the private equity investment and exit processes.
On average, private equity accounts for an estimated 28% of total UK corporate revenue amongst legal, accounting and corporate finance advisors active in the UK private equity industry.
Business centres such as Bristol, Birmingham, Manchester, Leeds and Edinburgh have significant local professional and financial communities, providing a vital network of support for private equity investors operating in the UK regional markets.
As well as an international community of specialist advisors and financial institutions within London, the UK has a substantial network of national and regional banks, law firms, corporate finance, accountancy and specialist consultancy groups providing valuable services to private equity and venture capital firms active in the UK regional markets.
Overall, there are over 220 professional advisory firms providing legal, financial and corporate finance advice to private equity firms in regional markets across the UK. These firms operate a local network of over 680 offices outside London and employ a regional workforce of some 2,330 full-time equivalent professionals in private equity and venture capital-related advisory work.
Over 5.9 billion of equity was invested outside London in 2006, with 988 regional businesses receiving private equity or venture capital backing. Local professional and financial services firms accounted for an estimated 63% of the transaction fees generated on these deals, which equates to around 1 billion of fee revenue flowing into regional economies during 2006.
Private equity represents a significant source of fee income for many firms within the UK’s network of professional advisors. Almost 60% of surveyed legal, corporate finance and accounting firms operating within the UK private equity markets outside London consider private equity to be either a significant or very significant source of revenue for their firms. Furthermore, 75% of respondents expect private equity to increase in significance as a revenue generator for their firms over the next three years.
On the whole, perceptions among regional advisors of the value of private equity to their local economies is positive, with many feeling that private equity contributes to the diversity and vibrancy of regional business communities.
Almost 60% of surveyed firms felt that their local private equity market would continue to grow in significance within their region’s business community over the next three years, while the remaining 40% felt that it would remain a stable feature of the market.
The increasingly significant role of private equity investors within the broader UK M&A market has meant that private equity transactions are accounting for a growing proportion of accountancy and corporate finance revenues.
Accountancy services firms contribute significantly to the UK economy, accounting for around 1% of GDP and employing some 209,000 professionals across 20,000 firms in the UK. Private equity clients are becoming an increasingly important source of revenue for these groups, not least because of the increasing market share of private equity investors within the broader UK M&A market.
UK private equity firms backed over 1,600 companies in 2006, committing close to 22 billion of equity. Additionally, almost 800 private equity-backed companies were divested via potentially fee earning transactions during 2006. These are all transactions where the services of an intermediary are likely to have been commissioned, generating a rich supply of advisory mandates for the UK accounting and corporate finance community.
The private equity industry is well-served by a diverse community of financial advisors, with an estimated 255 UK-based firms providing corporate finance, transaction services, tax and audit advice to private equity and venture capital investors. These firms, which include the Big 4 accountants, mid-tier accountancy practices, investment banks and specialist corporate finance boutiques, have an estimated 3,600 full-time equivalent professionals actively engaged in private equity-related advisory work.
Corporate finance and accountancy firms were the most significant category of fee-earner operating within the UK private equity industry in 2006. Their services generated an estimated 1.7 billion of fee revenue during the year, representing around 9% of total accountancy and related revenue.
Banking and finance providers in the UK offer considerable support to the UK private equity industry, partnering with investors on transactions both at home and in other international markets.
The UK banking industry contributes some 50 billion to the UK economy and employs some 472,000 people across 331 institutions. The UK’s community of lenders offers considerable support to the UK private equity industry, with around 70 retail and investment banks and a further 30 specialist debt providers engaged in the provision of debt facilities to private equity-backed businesses.
These groups, which include investment and commercial banks, specialist debt providers and other financial institutions, have a full-time equivalent pool of more than 1,360 professionals working on private equity-related mandates. They generated over 1.24 billion in debt arrangement fee revenue from transactions involving UK private equity houses in 2006.
Private equity-backed transactions account for an increasingly significant proportion of total M&A activity in the UK. For the last four years, private equity houses have accounted for an average of 20% p.a. of the total UK M&A market value, double the average proportion of the previous four years.
This is reflected in the levels of fee revenue generated by investment banking fi rms from these deals. Over the past four years, nearly 40% of UK investment banking revenue generated from loan financing and related services was derived from private equity-backed transactions.
UK-based investment banks accounted for almost 10% of global investment banking revenue from private equityrelated transactions in 2006. This puts the UK second only to the US in terms of its share of global sponsor-related investment banking fees.
Legal firms are amongst the top three fee earners within private equity and form an integral part of the industry, providing advisory services throughout the private equity cycle.
Legal firms make an important contribution to the UK economy, accounting for 14.9 billion, or 1.4% of GDP, and employing over 286,000 people. The UK legal services industry provides a vital resource for private equity investors, offering a range of services from transaction and fund structuring advice, to technical support in areas such as regulation, tax and employment.
There are over 200 law firms in the UK providing legal services to private equity firms. They range from large international firms with dedicated specialist private equity practices to small regional firms undertaking private equity-related mandates on an ad hoc basis. Together, these firms generated an estimated 1.2 billion of revenue from private equity-related services in 2006.
Collectively, UK-based law firms operating within the private equity market employ a full-time equivalent workforce of around 2,000 professionals actively engaged in private equity advisory work. Over half of these executives are employed within London’s community of international law firms, with the other half made up of national specialists within London and the UK regional legal services communities.
The UK, and particularly London, is a major international centre for legal firms and has a world-class population of international firms, over 80 of which provide services to the UK’s increasingly international private equity community.
There are a further 125 national law firms, based either in London or the UK regions, providing legal services through a network of over 940 full-time equivalent professionals.
As the UK private equity industry has grown and matured, a diverse network of professional and business support firms has increasingly expanded and strengthened to support it.
Together, this network of firms supporting the UK private equity community generated 1.24 billion of fee revenue from UK-based private equity groups in 2006. They have almost 2,400 full-time equivalent professionals engaged in the following private equity-related activities.
There are more than 120 commercial and environmental due diligence providers active within the UK private equity industry, employing a full-time equivalent workforce of around 1,000 professionals. In addition, an extensive community of specialist consultants exists in the UK, providing private equity investors with in-depth operational, management, market, technical and strategic due diligence in relation to potential investment targets. Together, these groups generated over 270 million in fees from private equity related mandates in 2006.
There are 44 firms providing stockbroking and equity capital markets services to the UK’s private equity investors, employing around 70 full-time equivalent professionals. In addition to new listings and sales of quoted equity, brokers provide key services in relation to fundraising programmes of quoted investment vehicles operating within the UK private equity market.
In total, these firms generated a total of 153 million in fee revenue in 2006, during the course of advising private equity firms. There are 30 placement agents providing fundraising support services to UK private equity investors. The majority of these groups are independent, specialist boutiques, often offering additional expertise in particular markets or aspects of the placing process.
There are also a number of specialist placing teams within investment banks, as well as a community of ‘one-manband’ agents. These firms employ a full-time equivalent of 170 professionals, and secured more than 126 million in fee revenue from private equity fundraising services in 2006.
Marketing, PR, data and research Differentiation and market positioning are of increasing importance to private equity firms in a mature and competitive UK industry. A broad base of groups and specialists support private equity firms in the areas of marketing and public affairs.
Furthermore, the increasing sophistication of the marketing and communications strategies of private equity firms has created strong demand for data and research.
Demand for private equity executive search services within the UK private equity industry has increased as the industry has matured. These agencies are engaged in recruiting investee company management team members, or executives for the private equity firms themselves.
Other professional services Private equity firms also require the services of property and real estate agents and advisors, fund administrators, information technology services, professional training, pensions and actuarial advice, risk advisory, tax and audit services, as well as retainers for technical advisory boards and other specialist advisors.