Private equity turns to co-investments as UK dealmaking regains momentum

"While mega-buyouts remain subdued, a quieter but significant shift is under way: the rise of co-investments in private markets. After two years of muted activity, UK-focused private equity firms are increasingly targeting mid-market opportunities, platform acquisitions and bolt-on deals, particularly in sectors offering resilient cash flows such as healthcare, business services, technology infrastructure and energy transition. According to industry figures, deal volumes are stabilising, even as valuations remain below the peaks of 2021."

"Fund managers say the market is not short of capital - often described as "dry powder" - but that deployment strategies have changed. With debt more expensive and exit routes less predictable, firms are structuring deals more cautiously and leaning on co-investments to spread risk and align interests. Co-investments allow institutional investors, such as pension funds, insurers and family offices, to invest directly alongside private equity sponsors in individual transactions, often on more favourable fee terms."

Private equity investment activity in the UK is recovering as dealmakers adapt to higher interest rates, tighter lending and investor pressure for control and lower fees. Mega-buyouts remain subdued while co-investments are increasing. Firms are focusing on mid-market opportunities, platform acquisitions and bolt-on deals in sectors with resilient cash flows such as healthcare, business services, technology infrastructure and energy transition. Deal volumes are stabilising although valuations remain below 2021 peaks. Capital levels remain high, but more expensive debt and uncertain exit routes have led to cautious deal structures and greater use of co-investments to spread risk, lower costs and increase transparency.

Read at Business Matters