A pivotal moment for the UK's standing in European private markets
September 7, 2024
Macroeconomics and politics have taken center stage in UK private markets this year.
The first half of 2024 has provided significant changes for the nation, namely the introduction of a new government regime. This brings with it potential changes to the capital gains tax, the removal of previously outlined AI funding, and the launch of a £7.3 billion investment in clean technologies via a new National Wealth Fund.
More broadly, UK macroeconomic data points indicate a more constructive picture, with GDP continuing to grow QoQ and inflation at the BoE's 2% target. Since then, we have also had the first rate cut from the central bank, which should continue to be supportive of private market valuations through the second half of the year.
The resulting impact on private market activity already seems to be having an effect, with both VC and PE deal value in H1 pacing above last year.
AI and fintech verticals continue to be supportive of deal flow, with the UK proving to be the largest hub for AI companies in Europe, ahead of France.
Lower rates are also favoring LBO deals in PE, with discounted valuations in the region fueling a significant amount of take-private activity. The latter has supported public equity valuations, too.
It is therefore difficult to disentangle how much of the rally is buoyed by take-private activity versus fundamentals. A step change to the latter will be needed for listings activity to improve, with exits remaining the weakest area for the region across VC and PE markets.
Given it is the largest ecosystem in Europe, the UK will continue to prove a barometer for wider European activity. However, the fostering of fast-growing ecosystems, such as AI, will be critical for maintaining its leadership, where other regions such as France are catching up—doubling its share of European AI deal value in H1.
In a market that is becoming more specialized by strategy, we expect managers that can capitalize on nascent, structurally growing technologies, such as AI and cleantech, will be well-placed longer-term.
For more data and analysis into UK public and private market trends, download our free research:
UK Private Capital Breakdown
UK Market Snapshot
The first half of 2024 has provided significant changes for the nation, namely the introduction of a new government regime. This brings with it potential changes to the capital gains tax, the removal of previously outlined AI funding, and the launch of a £7.3 billion investment in clean technologies via a new National Wealth Fund.
More broadly, UK macroeconomic data points indicate a more constructive picture, with GDP continuing to grow QoQ and inflation at the BoE's 2% target. Since then, we have also had the first rate cut from the central bank, which should continue to be supportive of private market valuations through the second half of the year.
The resulting impact on private market activity already seems to be having an effect, with both VC and PE deal value in H1 pacing above last year.
AI and fintech verticals continue to be supportive of deal flow, with the UK proving to be the largest hub for AI companies in Europe, ahead of France.
Lower rates are also favoring LBO deals in PE, with discounted valuations in the region fueling a significant amount of take-private activity. The latter has supported public equity valuations, too.
It is therefore difficult to disentangle how much of the rally is buoyed by take-private activity versus fundamentals. A step change to the latter will be needed for listings activity to improve, with exits remaining the weakest area for the region across VC and PE markets.
Given it is the largest ecosystem in Europe, the UK will continue to prove a barometer for wider European activity. However, the fostering of fast-growing ecosystems, such as AI, will be critical for maintaining its leadership, where other regions such as France are catching up—doubling its share of European AI deal value in H1.
In a market that is becoming more specialized by strategy, we expect managers that can capitalize on nascent, structurally growing technologies, such as AI and cleantech, will be well-placed longer-term.
For more data and analysis into UK public and private market trends, download our free research:
UK Private Capital Breakdown
UK Market Snapshot
Navina Rajan
Senior Analyst, EMEA Private Capital
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