UK Private Capital Market Summary - Q2 2023
Core Content Overview
This report provides a detailed analysis of the UK private capital market performance for Q2 2023, including insights into macroeconomic trends, equity and private markets, venture capital (VC) and private equity (PE) deal and exit activity, and fundraising trends.
Main Trends and Key Points
Macro Trends
- Bank Rate: The UK bank rate rose to a peak of 5.25% in July, sparking debates about the potential for economic recession.
- GDP Growth: Q2 GDP growth plateaued, avoiding a recession, but there is growing sentiment about a possible recession in 2024.
- Inflation: Inflation persisted in Q2, with the Consumer Price Index (CPI) showing some decline but wage inflation reaching its highest level since Q2 2021.
- Exchange Rate: The pound appreciated against the dollar, reaching £1.26 GBP/USD compared to Q1.
- Consumer and Business Confidence: Consumer confidence remained relatively stable, while business confidence showed a slight decline from Q1 to Q2.
- Bond Yields: 10-year government bond yields increased from 0.28% in 2020 to 3.56% in Q2 2023, indicating rising risk aversion.
Public Equity Markets
- FTSE 100: Increased by +3.2% year-to-date (YTD) as of June 30, 2023, lagging other European indices.
- Valuations: Market valuations continued to compress, with the FTSE 100 PE ratio dropping to 10.1x in Q2 from 11.9x in Q1.
- Public Listings: VC-backed public listings plateaued in Q2, with only two per quarter since Q4 2022.
Private Equity (PE)
- Deal Activity: UK PE dealmaking activity fell from 2022 but increased quarter-over-quarter (QoQ) in Q2.
- Top Deals: The top PE deal in Q2 was the take-private buyout of Dechra Pharmaceuticals for £5.1 billion. EG Group is the highest-valued PE-backed company in the UK at £15.1 billion.
- Fundraising: Fundraising in the UK PE market was strong in H1 2023, with megafund closes from Permira and KKR.
- Top LPs: Aberdeen Private Equity Opportunities and teacher retirement funds in California and Texas had the highest number of commitments to UK PE funds over the last three years.
- Top Investors: BGF Capital made the most investments, with 208 deals.
Venture Capital (VC)
- Deal Activity: VC dealmaking activity declined from 2022 but increased QoQ in Q2.
- Top Deals: The highest-valued deal in Q2 was by YgEia3, valued at £602.7 million, shortly before its acquisition in June. Checkout.com remains the highest-valued company in the UK at a post-money valuation of $29.8 billion.
- Fundraising: VC fundraising remained weak, with a notable increase in close times. British Patient Capital had the most LP commitments to VC funds over the last three years.
- Investors: SFC Capital had the highest number of investments, with 312 deals.
- Valuations: Most startups faced lower valuations, forcing them to extend runways and improve efficiency.
Government Involvement
- Support for VC: The UK government introduced a plan to direct £75 billion from pension funds to startups, aiming to boost investment outside London and the South East.
- Tax Relief: The Treasury Select Committee urged ministers to provide certainty on tax relief for startup investors through the Enterprise Investment Scheme and venture capital trusts.
- Diversity Initiatives: Members of Parliament called for increased investment in startups founded by women and minority groups.
City Comparison
| City |
VC Deal Value (£B) |
VC Deal Count |
VC Exit Value (£B) |
PE Deal Value (£B) |
PE Deal Count |
PE Exit Value (£B) |
PE and VC Capital Raised (£B) |
VC Median Valuation (£M) |
VC First-Time Financing Count |
| London |
£85.34 |
16,151 |
£56.49 |
£273.55 |
3,482 |
£227.61 |
£404.44 |
£3.83 |
4,626 |
| Cambridge |
£6.36 |
1,088 |
£6.22 |
£2.08 |
95 |
£1.18 |
£1.72 |
£4.41 |
194 |
| Oxford |
£3.92 |
503 |
£7.65 |
£2.03 |
61 |
£2.90 |
£0.79 |
£4.67 |
75 |
| Manchester |
£1.58 |
621 |
£1.23 |
£8.67 |
320 |
£14.13 |
£1.86 |
£2.67 |
165 |
| Southampton |
£0.68 |
117 |
£4.35 |
£0.69 |
64 |
£0.59 |
£0.01 |
£5.01 |
20 |
| Edinburgh |
£1.40 |
830 |
£1.18 |
£9.96 |
130 |
£6.93 |
£5.36 |
£2.40 |
153 |
| Bristol |
£2.14 |
450 |
£1.60 |
£2.73 |
207 |
£3.07 |
£0.23 |
£2.56 |
98 |
| Leeds |
£0.44 |
225 |
£0.19 |
£12.00 |
227 |
£8.14 |
£1.64 |
£2.24 |
72 |
| Guildford |
£0.35 |
144 |
£0.16 |
£1.02 |
48 |
£0.83 |
£0.00 |
£4.33 |
39 |
| Birmingham |
£0.36 |
272 |
£0.03 |
£13.14 |
192 |
£13.65 |
£0.19 |
£1.69 |
67 |
| Nottingham |
£0.37 |
158 |
£0.06 |
£2.69 |
153 |
£4.55 |
£0.06 |
£2.61 |
40 |
| Glasgow |
£0.63 |
351 |
£0.12 |
£0.87 |
172 |
£0.62 |
£0.61 |
£2.31 |
86 |
| Cardiff |
£0.77 |
278 |
£0.07 |
£0.46 |
106 |
£0.41 |
£0.25 |
£2.63 |
71 |
| Aberdeen |
£0.51 |
87 |
£0.05 |
£4.05 |
147 |
£3.21 |
£0.19 |
£2.27 |
25 |
| Newcastle-Upon-Tyne |
£0.42 |
246 |
£0.23 |
£4.96 |
76 |
£5.45 |
£0.30 |
£1.98 |
61 |
| Richmond |
£0.11 |
73 |
£0.27 |
£1.41 |
23 |
£1.65 |
£0.05 |
£3.01 |
19 |
| Sheffield |
£0.42 |
188 |
£0.12 |
£1.24 |
102 |
£2.92 |
£0.13 |
£2.26 |
46 |
| Norwich |
£0.20 |
110 |
£0.02 |
£1.12 |
64 |
£1.35 |
£0.07 |
£2.29 |
24 |
| Surrey |
£0.07 |
86 |
£0.02 |
£0.32 |
46 |
£0.21 |
£0.00 |
£2.32 |
15 |
| Belfast |
£0.52 |
288 |
£0.16 |
£1.76 |
67 |
£0.89 |
£0.12 |
£1.52 |
69 |
Heatmap
Macroeconomic Activity (2020-2023)
| Segment |
2020 |
2021 |
2022 |
2023* |
| Nominal GDP Value (£B) |
£431.79 |
£503.51 |
£509.62 |
£557.29 |
| Nominal GDP Growth |
-20.99% |
16.61% |
1.21% |
-0.09% |
| CPI (all items) |
0.80% |
0.70% |
0.80% |
8.80% |
| PPI (input) |
-2.90% |
-2.20% |
0.80% |
21.30% |
| PPI (output) |
-1.70% |
-1.70% |
-0.20% |
16.20% |
| Wage Growth |
-1.30% |
1.30% |
4.60% |
6.00% |
| Unemployment Rate |
4.10% |
4.90% |
5.20% |
3.60% |
| UK Bank Rate |
0.10% |
0.10% |
0.10% |
4.25% |
| Consumer Confidence |
97.26 |
97.78 |
97.76 |
95.24 |
| Business Confidence |
94.90 |
98.28 |
98.45 |
99.81 |
| 10-Year Bond Yields |
0.28% |
0.27% |
0.32% |
3.56% |
| Exchange Rate (GBP - USD) |
1.25 |
1.29 |
1.34 |
1.21 |
| Residential Property Prices |
2.00% |
3.40% |
7.00% |
8.80% |
Scorecard
PE and VC Scores
| Segment |
Count |
% of Total |
Long-Term Score |
Short-Term Score |
Value (£B) % of Total |
Long-Term Score |
Short-Term Score |
| VC deals |
651 |
100% |
-3.40 |
-3.06 |
£4.3 (100%) |
-0.88 |
-2.23 |
| Angel and seed |
205 |
31% |
-4.13 |
-2.08 |
£0.4 (9%) |
-1.55 |
-1.04 |
| Early stage |
199 |
31% |
-2.47 |
-2.09 |
£1.0 (23%) |
-1.85 |
-1.76 |
| Late stage |
191 |
29% |
-1.08 |
-1.78 |
£2.2 (50%) |
-0.16 |
-1.09 |
| Venture growth |
56 |
9% |
0.39 |
-0.51 |
£0.8 (18%) |
0.05 |
-0.44 |
| VC exits |
38 |
100% |
-0.16 |
-1.33 |
£1.0 (100%) |
-1.87 |
-1.80 |
| PE deals |
352 |
100% |
-1.04 |
-2.00 |
£38.4 (100%) |
-0.07 |
-0.88 |
| Buyout |
275 |
78% |
-0.68 |
-1.85 |
£35.9 (10%) |
0.05 |
-0.75 |
| Growth/expansion |
77 |
22% |
-2.14 |
-1.64 |
£2.5 (1%) |
-0.64 |
-1.34 |
| PE exits |
50 |
100% |
-2.04 |
-1.68 |
£15.5 (100%) |
-1.72 |
-1.18 |
Fund Performance
One-Year Horizon IRRs by Asset Class (2017-2022)
| Asset Class |
2017 |
2018 |
2019 |
2020 |
2021 |
2022* |
| Buyout |
19.7% |
18.2% |
16.0% |
15.1% |
10.6% |
11.5% |
| Growth/Expansion |
19.0% |
17.5% |
16.8% |
16.3% |
12.6% |
11.9% |
| Venture Capital |
19.2% |
18.2% |
16.8% |
16.0% |
12.5% |
11.2% |
| Private Capital |
36.6% |
36.4% |
36.4% |
23.5% |
20.8% |
10.3% |
| Infrastructure |
9.60% |
9.20% |
6.70% |
6.00% |
4.00% |
8.7% |
| Private Debt |
32.3% |
27.8% |
16.2% |
10.8% |
7.80% |
7.8% |
| Real Estate |
2.90% |
2.40% |
1.70% |
1.30% |
1.20% |
6.8% |
| Oil & Gas |
4.80% |
3.20% |
-11.9% |
-20.8% |
-11.9% |
6.0% |
15-Year Horizon IRRs
| Asset Class |
IRR |
| Growth/Expansion |
14.7% |
| Secondaries |
11.9% |
| Buyout |
11.5% |
| Venture Capital |
11.2% |
| Private Capital |
10.3% |
| Funds of Funds |
10.2% |
| Infrastructure |
8.7% |
| Private Debt |
7.8% |
| Real Estate |
6.8% |
| Oil & Gas |
6.0% |
Top Limited Partners and Investors
Top LPs by Commitments to UK VC Funds (2020-2023)
| Limited Partner Name |
# of Commitments |
| British Patient Capital |
16 |
| European Investment Fund |
13 |
| British Business Bank |
7 |
| Big Society Capital |
5 |
| Isomer Capital |
5 |
Top Investors by Number of VC Investments (2020-2023)
| Investor Name |
# of Investments |
| SFC Capital |
312 |
| Plug and Play Tech Center |
173 |
| Mercia Asset Management |
167 |
| Scottish Enterprise |
163 |
| Octopus Ventures |
161 |
Top LPs by Commitments to UK PE Funds (2020-2023)
| Limited Partner Name |
# of Commitments |
| abrdn Private Equity Opportunities |
11 |
| California State Teachers' Retirement |
11 |
| Teacher Retirement System of Texas |
11 |
| BMO Private Equity Trust |
10 |
| Columbia Threadneedle Investments |
10 |
Top Investors by Number of PE Investments (2020-2023)
| Investor Name |
# of Investments |
| BGF |
208 |
| LDC |
137 |
| Inflexion Private Equity Partners |
105 |
| August Equity |
86 |
| Hg |
80 |
VC Deal Activity
Top Five VC Deals by Value in Q2 2023
| Company |
Date |
Deal Value (£M) |
Valuation (£M) |
Deal Type |
Industry Group |
Industry Code |
| YgEia3 |
May 1 |
£602.7 |
N/A |
Late-stage VC |
Healthcare Services |
Laboratory Services |
| Getir |
April 20 |
£383.9 |
£5,254.0 |
Late-stage VC |
Retail |
Internet Retail |
| Builder |
May 23 |
£199.9 |
N/A |
Late-stage VC |
Software |
Software Development Applications |
| Ascend Gene And Cell Therapies |
May 8 |
£106.3 |
N/A |
Early-stage VC |
Pharmaceuticals and Biotechnology |
Biotechnology |
| Quantexa |
April 4 |
£106.0 |
£1,478.5 |
Late-stage VC |
Software |
Business/ Productivity Software |
VC Exit Activity
Top Five VC-Backed Exits by Value in Q2 2023
| Company |
Date |
Exit Value (£M) |
Exit Type |
Industry Group |
Industry Code |
| YgEia3 |
June 9 |
£547.4 |
Merger/Acquisition |
Healthcare Services |
Laboratory Services |
| Velocity Black |
May 31 |
£300.0 |
Merger/Acquisition |
Media |
Information Services (B2C) |
| 30 Technology |
April 19 |
£45.0 |
Merger/Acquisition |
Pharmaceuticals and Biotechnology |
Drug Discovery |
| World Chess |
April 6 |
£38.6 |
IPO |
Media |
Broadcasting, Radio, and Television |
| Funderbeam |
May 4 |
£32.1 |
Merger/Acquisition |
Other Financial Services |
Other Financial Services |
Top Five VC-Backed Public Listings by Exit Value (2022-2023)
| Company |
Date |
Exit Value (£M) |
Exit Type |
Industry Group |
Industry Code |
| Selina |
October 27, 2022 |
£900.0 |
Reverse Merger |
Restaurants, Hotels, and Leisure |
Restaurants, Hotels, and Leisure |
| Clean Power Hydrogen |
February 16, 2022 |
£89.0 |
IPO |
Energy Equipment |
Alternative Energy Equipment |
| TC Biopharm |
February 11, 2022 |
£75.1 |
IPO |
Pharmaceuticals and Biotechnology |
Drug Discovery |
| World Chess |
April 6, 2023 |
£38.6 |
IPO |
Media |
Broadcasting, Radio, and Television |
| EnSilica |
May 24, 2022 |
£31.6 |
IPO |
Semiconductors |
Application-Specific |
Summary
The UK private capital market in Q2 2023 showed mixed trends, with both VC and PE dealmaking activity declining from 2022 but increasing QoQ. Despite the decline in fundraising compared to 2022, the UK remained a hub for major fund closures in Europe. The market continued to face macroeconomic challenges, including rising interest rates and persistent inflation, with a growing concern about a potential recession in 2024. The government's increased involvement in the VC sector, including initiatives to support startups and provide tax relief, signals a shift in policy towards fostering innovation and investment diversity. London remained the dominant city for VC and PE activity, with other cities like Cambridge, Oxford, and Manchester also showing significant contributions. Overall, the market environment is challenging, with valuations under pressure and a need for startups to focus on efficiency and runway extension.
