The value of smaller private equity buyouts grew 25% in the three months to September to almost £600m, indicating a returning confidence among Britain’s small and mid-sized companies in the aftermath of recession.

Data from The UK Growth Buyout Dashboard – a quarterly trend analysis of private equity transaction in the £10 million to £100 million segment produced by Cass Business School and Lyceum Capital – shows 12 companies raised an estimated £590m of buyout funding during the period. This compares with 15 transactions and £474m of funding in the previous quarter (April to June), when activity spiked in the run up to the coalition government’s emergency budget and the anticipated capital gains tax increase.

The report’s authors say the figures provide further evidence that business owners and entrepreneurs, many of whom are thought to have mothballed plans during the downturn, were returning to the market to realise value or secure growth capital for expansion. They also contrast with official data from The Bank of England which show traditional bank lending to SMEs is falling. Despite clearly indicating a sustained recovery in smaller growth buyouts, the study also shows that activity remains significantly behind peak levels seen before the advent of the credit crunch.

Andrew Aylwin, a partner at Lyceum Capital, said: “Following a tough few quarters for most businesses, owner-managers are coming up for air, dusting off their pre recession business strategies and looking to either realise value or secure capital and a business partner for the next leg of the journey. Many have had their business models stress-tested like never before and they’ve survived or prospered, creating an opportune time to sell or expand. The equity capital has always been there, but critically debt availability and pricing have generally improved.

“Looking ahead, there is still a lingering uncertainty around the impact of the coalition government’s austerity measures on spending, and the comprehensive spending review later this month could have a significant bearing on many sectors. Given the government’s emphasis on a private sector-led recovery, and our own experience suggesting there’s a higher volume of companies progressing through the diligence process, we wouldn’t be surprised to see private equity investment levels continue on their upward trend over the coming three months and into 2011.

Scott Moeller, director of the M&A Research Centre at Cass Business School, said: “There is still a
fragility to the market but this does feel like a consistent and predictable trend with the amount of investment and to a certain extent exit activity gradually returning towards a more normal and sustainable level. We will need to be watching closely over the next several quarters for continued strength in this lower- to mid-market sector that has traditionally been one of the strongest sectors for private equity activity.”