Private equity and venture capital in the UK | Review of H1 2018

We have seen deal volumes and values remain high during the first half of 2018, reflecting the extraordinary amount of dry powder still available.  This echoes activity levels in the wider market: Mergermarket has reported that private equity activity in Europe in 2018 has eclipsed 2017’s H1 post-crisis buyout record of US$ 72.8bn (717 buyouts), registering US$ 80.7bn (635 buyouts) across the first six months of 2018.  In the wider VC and growth capital market, research reports indicate that investments have slowed slightly in 2018 after a stellar 2017 which saw US$8bn+ invested within the UK with multiple mega-rounds.  Nevertheless, 2018 still managed to achieve a healthy start, with one US$100m round pushing the UK's tally to over US$1bn of VC and growth capital investment.

Recent deals

In the VC and growth capital space, Osborne Clarke advised on more than 30 deals in H1 of 2018 and more than half of those were in the tech, media and comms sector.  Notable VC and growth capital deals include:

• The Players Tribune on its investment by FC Barcelona's Gerard Pique and other athletes of an undisclosed amount;
• Community Fibre on its £25 million investment round led by NDIF;
• MADE.COM on its £40 million equity funding round;
• BookingBug on its $13.4 million Series C fundraising round;
• Goldman Sachs on its Series A funding investment in AI-specialist Eigen Technologies.

In the private equity space, we continue advising a range of sponsors and management (under our management advisory service).  Notable private equity deals closing in H1 2018 include advising:

• Cloud Savings Company on the MBO of Vouchercloud and Giftcloud;
• Management on the MBO of Fitness Hut;
• Travel Department's management team on an investment by MML Growth Capital Partners Ireland;
• Management on the MBO of OrthoD funded by Apposite Capital;
• Corin on its majority stake sale to Permira;
• Lovehoney on an investment from Telemos Capital;
• Tenzing on its investments in Converge TS and CitNOW;
• YFM on its investment into Eikon.

We have also seen a steady flow of exits, whether secondary MBOs, trade sales or IPOs.  Notable exits which Osborne Clarke advised on in H1 2018 included advising:

• Alcuin on the secondary MBO of Jigsaw24.
• Management of Sovereign Capital Partner's portfolio company Linneaus on its sale to the Mars Inc. group.

Osborne Clarke has also been at the forefront of the resurgence of the IPO exit: we advised on 3 of the 17 private equity-backed IPOs in 2017 (Medica Group plc's £121m main market IPO, Alpha Financial Markets Consulting plc's £126m AIM IPO and Arena Events Group plc's £60m AIM IPO) and this year advised LDC on the £200m AIM IPO of Team 17 Group plc in May 2018.  You can read more about IPOs as an exit route for PE in our article here.

Sector trends

In terms of in-demand sectors, anything tech related continues to attract high levels of interest, particularly if the business involves blockchain or AI.  PropTech and FinTech are two areas generating credible investment propositions.

In the PropTech area, Osborne Clarke’s Future Proof Real Estate report published earlier in 2018, which surveyed 550 leading technology and real estate thought leaders from across Europe, found that 82% of respondents see the tech industry as having an increasingly important influence on the built environment. This includes both PropTech companies developing the technology solutions and the role of tech companies as tenants shifting the expectations of building occupiers. The respondents concluded that the real estate sector will roll out major transformative technologies by 2020. This trend is being seen on both sides of the Atlantic with some of the largest real estate markets (e.g. New York and London) leading on innovation and implementation of technology.

In the FinTech area, we are seeing blockchain opportunities in financial infrastructure (payment, settlement, identity and AML systems) and financial transactions (syndicated lending, trade finance, invoice finance).  One major bank we have spoken with has reported having analsyed some 200-plus blockchain use cases over the last 18-24 months. It has whittled that list down to just three use cases which it sees as having the most potential impact on its business.  We anticipate 2018 to be the year that many blockchain finance projects move out of the test environment and into the real world.  For more on FinTech look out for our inaugural FinTech Update which will be published later this month and follow our blockchain insights.

Finally, a review of the first half of 2018 would not be complete without mentioning Intial Coin Offerings (ICOs), where Osborne Clarke has experience advising issuers and investors.  ICOs have now gone mainstream and the model appears to be maturing as national regulators get to grips with this fundraising model.  You can read about the current regulatory landscape for token issuers in a range of jurisdictions here.