A new market snapshot report from Pitchbook shows a UK economy firing mixed signals at the start of 2024.
While real GDP growth increased by 0.6% in the first quarter, marking the fastest rate in two years and signalling an exit from recession, the 5.7% wage growth and recent tax cuts have lowered the chances of a rate cut in June.
The FTSE 100 has underperformed compared to other European indices, rising only 4.0% year-to-date. This underperformance has led to increased mergers and acquisitions (M&A) activity, with companies like Darktrace and Hargreaves Lansdown receiving takeover offers.
The trend of take-private transactions suggests a growing private market as public companies seek better valuations away from the stock market.
Private Equity and Venture Capital Trends/Insights
Private equity (PE) activity in the UK has shown a mixed performance.
While dealmaking has decreased quarter-over-quarter and remains flat compared to last year, median buyout values have increased significantly. The largest deal in Q1 was All3Media’s £1.2 billion buyout. PE fundraising remains robust, with Q1 2024 already achieving half of 2023’s total fundraising levels, driven by large funds from Permira, Keensight, and Apax.
Venture capital (VC) activity in the UK has started 2024 on a weaker note after a resilient year of fundraising in 2023, capital raised by UK VC funds in Q1 significantly paced below last year.
Across Q1 2024, £0.7 billion was been raised over 10 vehicles – the various investment structures or funds that venture capital firms use to pool and allocate capital into startups or other ventures – on pace to raise £2.8 billion compared with £7.4 billion in 2023.
It is the absence of large closes that has driven this downturn, in which we have seen smaller, emerging firms take share of LP capital.
Furthermore, unlike trends seen earlier in 2023, UK venture dry powder – the reserve of cash or liquid assets that venture capital firms have available to invest in new opportunities or support existing portfolio companies – decreased, as deal activity has been robust but fundraising levels have come under pressure.
The largest deal was Apollo Therapeutics’ £205.3 million round. The disparity in median deal sizes was evident, with late-stage deals increasing while early-stage deals declined. The UK saw a drop in its unicorn count to 28 after Gett’s valuation fell significantly. Fundraising by UK VC funds also slowed, with only £0.7 billion raised in Q1 compared to £7.4 billion in 2023.
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The general election and budget are crucial upcoming events for the UK economy. Labour has promised to boost the tech sector, which could influence future VC and PE activities. New regulations for the Private Intermittent Securities and Capital Exchange System are expected by the end of 2024, with the exchange launching in early 2025.
However, there is skepticism about the government’s focus on private markets, especially with declining activity on the London Stock Exchange. Additionally, the potential listing of SHEIN on the London Stock Exchange, valued at £50 billion, is controversial due to environmental, social, and governance issues, and its impact on the market remains uncertain.