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Smaller buyouts escalate in UK industrials sector

Private equity

Surge in private equity-backed investments in construction and materials SMEs in past year

DATA from Unquote, one of the leading European private equity specialists, show that private equity-backed buyout investments have soared in the past year for the industrials sector.

Although the UK hosts its fair share of manufacturing conglomerates, Unquote say it has been some time since the country was renowned for its ecosystem of industrial SMEs.

However, private equity-backed buyout investments in both the industrial engineering and the construction and materials spaces have soared in the past year, particularly for companies with enterprise values of up to £50 million.

There were 11 such buyouts in the construction and materials segment between the second quarter (Q2) of 2018 and the first quarter (Q1) of 2019, according to Unquote Data, compared with six in each of the two previous years and three in 2015–2016.

Similarly, in the industrial engineering sector there were 15 buyouts within the value range, comfortably surpassing the five seen in 2017–2018, seven in 2016¬–2017 and four in 2015–2016.

Another notable trait in the UK industrials space is that companies are often located in the so-called regions, as opposed to being concentrated in London and the south-east of England.

Of the 11 sub-£50 million buyout investments in the construction and materials segment since Q2 2018, just two were located in London and the South East, whilst in the industrial engineering space the region accounted for three of the 15 deals.

Deals involving industrial companies accounted for 23% of sub-£50 million buyouts between Q2 2018 and Q1 2019, whilst they accounted for just 13% of those valued at £50 million and above.

‘We are certainly seeing a growing interest from private equity for smaller buyouts in the UK industrial space. This appears to be driven in part by new-entrant and sector-specific firms, whose senior management often have industrial expertise themselves. These firms are carving out a niche for themselves by targeting a sector that has traditionally proved less alluring to many of the more established buyout houses,’ commented Kenny Wastell, associate editor at Unquote.

‘There has, however, also been an increase across the board, and this is likely to be driven by more moderate pricing in comparison with other sectors and by the fragmented nature of the industrial space,’ he added.

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