Brexit Volatility May Pay Off for Private Equity Firms, BCG Says

  • Funds looking at the U.K. will need to increase due diligence
  • Industrial firms, private medical clinics are attractive

In a post-Brexit market, private equity firms are finding unique opportunities in the U.K. that give them an edge over rival, corporate bidders as buyout targets look for ways to cope with new volatility, according to the Boston Consulting Group.

Companies with close ties with the European Union for trade, workers and regulations may experience the most upheaval, the Boston Consulting Group said in a report Thursday. Industrial distribution companies, private medical clinics and laboratories, aerospace manufacturing and employment and recruitment services are sectors that present some of the best investments, the report said.

“PE firms have notable advantages over corporate acquirers and IPOs during periods of change,” the report said. “They combine abundant capital with a sense of urgency, yet their longer investment horizons allow them to acquire companies in uncertain times.”

Uncertainty around the U.K.’s June decision to leave the European Union has depressed deals and initial public offerings in the country this year. Spending on mergers and acquisitions involving U.K. companies is down 53 percent this year from the same period in 2015, according to data compiled by Bloomberg. Funds raised from London IPOs are down 62 percent.

That volatility also means buyers will have to screen targets more closely and accept higher risks, the report said. It also means that after a deal is done, bidders will have to pay closer attention to revamping their acquisition’s strategy and making operational improvements.

"Private equity firms will have to step up their due diligence and accept additional risk in U.K. investments," the report says. "But the breakup also offers an opportunity for PE firms that have honed their capabilities in helping companies deal with change."

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