Northern Ireland remains fertile for private equity investment

During the summer, Eversheds Sutherland Private Equity specialists published a series of weekly bitesize articles focusing on issues likely to be relevant to investors and their portfolio companies at that time and in the future writes Richard Kyle, Partner, Corporate, Eversheds Sutherland.

Despite some good predictions, some are still to play out. When I think back to that time, a number of clients had FOMO (the Fear Of Missing Out) on good quality businesses, but deal volume had certainly slowed down. September came, schools returned, and our phones started to ring off the hook to ask for support on new processes. It felt like a normal September and the run into Christmas has been as busy as ever – if not more so.

In terms of the issues and challenges that we anticipated, we have advised sponsors on steps taken to protect their portfolio companies and “right-size” debt; advised directors on their duties and the change of emphasis on those duties when businesses start to tip towards insolvency;  and portfolio companies on their applications for CBILS and good tax housekeeping to maximise cashflow.

We have seen lenders remain open for business, and debt funds continuing to be relevant and provide alternative lending solutions to the market. In relation to deal processes, as we expected, the businesses of the highest quality in the healthcare and technology spaces have driven incredibly competitive processes and high multiples, with deal certainty, flexibility, and speed of execution being key determining factors in the success of bids.

As we move into 2021, I expect to see deal activity remain high. Sponsors still have cash to invest and deployment targets to meet. Vendors – perhaps fatigued by dealing with the impact of Brexit, then Covid and with the upcoming anticipated changes to CGT – may be very much ready to sell and complete disposals by the end of February 2021.

Whilst we have sadly witnessed some businesses fail, we believe as government funding continues to tail off, we will start to see opportunities for special situations and turnaround investors to step in and support really strong businesses across other sectors that would have continued on strong growth trajectories but for the pandemic.

For Northern Ireland, the unknown longer-term implications of what is ultimately agreed as result of Brexit will of course be relevant. Focusing on the known positives, the quality of our businesses, and the people who run those businesses, the great work of indigenous funds like Crescent Capital and Clarendon Fund Managers to support entrepreneurs to grow their businesses, and the investments made by funds like H2 Equity Partners, Perwyn, LDC and BGF, I believe that Northern Ireland will remain a fertile investment location for private equity investors throughout 2021.

I am quietly optimistic about what next year can bring. The roll out of the vaccine, a return to semi-normality and, from a personal and professional perspective, to continue to see NI businesses flourish and private equity investment remain at the heart of M&A activity for the next 12 months and beyond.

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