Overview of Private Equity in the UK
Things are not as bright as they seemed just 5 years ago. UK’s private equity market is wimping out in terms of investment deals. As a result, start-ups and small businesses have been finding it hard to expand their base and making their mark.
In 2016, the number of equity investmentsEquity InvestmentsEquity investment is the amount pooled in by the investors in the shares of the companies listed on the stock exchange for trading. The shareholders make gain from such holdings in the form of returns or increase in stock value. has been curtailed by 18% compared to the previous year. Compared to the 1460 deals in 2015, in 2016, the number of deals was just 1203.
Even in 2014 as well, the investment deals in the UK has been drastically reduced. Compared to the 1473 deals in 2013, in 2014, the investment deals which reached their fruition were just 1349.
While the things are looking dim and apprehensions of the future loom large, there is good news. Though this has nothing to do with private equity, still, the start-ups in the UK are being saved for this. Instead of going for a similar route, start-ups are looking for crowd-funding options that can help them create immediate cash-flow for their operations/expansion.
But if you happen to be in London, you can still rock the market. According to the research done by Preqin (as of June 2016), it was found that 81% of all UK fund managers are located in London and collectively raised 302 billion Euros, which happens to be 96% of all capital that has been raised in the last 10 years.
So, if you look to work and thrive in the private equity market, London would be your go-to-city as of now.
If you are new to private equity, you may learn more from the Private Equity Introduction Guide.
Private Equity Services Offered in the UK
Private Equity in the UK provides basically three services to its clients; let’s investigate what those 3 fundamental services are –
- Initial Public Offering (IPO): Private equity firms provide funds for private companies and companies that want to go public. And to go for an IPO is a hugely expensive task. Where would the money come from? Private Equity firmsPrivate Equity FirmsPrivate equity firms are investment managers who invest in many corporations' private equities using various strategies such as leveraged buyouts, growth capital, and venture capital. The top private equity firms include Apollo Global Management LLC, Blackstone Group LP, Carlyle Group, and KKR & Company LP. would be at your rescue. Along with funding for IPO, private equity firm also sells additional shares to the public.
- Merger & Acquisition (M&A): If two companies decide to club and combine and make ruckus of their competitive advantages by creating synergies, Private Equity in the UK would help them make things happen. They help one company gets sold to another company instead of cash or shares.
- Recapitalization: When there is a need to recapitalizeRecapitalizeA recapitalization is a method of restructuring the ratios of various capital-generating modes, such as debt, equity, and preference shares, based on WACC and other company requirements, such as desired control level., private equity firms in the UK help the companies get funded either by cash or means or by raising debts.
List of Top 10 Private Equity Firms in the UK
Irrespective of the economic crash down and downturn of the market, few companies always do well. And that’s what happened in the private equity market in the UK. Few top companies did well in terms of aggregate capital raised.
This report is prepared by Preqin’s Private Equity Online and headquarter of all of these firms in London.
Let’s now look at the list of top private equity firms as of June 2016 –
- CVC Capital Partners: CVC Capital Partners took the first spot and raised around 32.1 billion Euros.
- Apax Partners: Apax Partners were in the second position raising around 18.1 billion Euros in aggregate.
- Permira: On the third spot is Permira, and it raised around 16.4 billion Euros.
- Coller Capital: Coller Capital was in the fourth spot and raised 14.6 billion Euros.
- Pantheon: By raising around 13.1 billion Euros, Pantheon took the fifth spot.
- Cinven: Cinven raised 11.8 billion Euros in aggregate and took the sixth position.
- Charterhouse Capital Partners: Charterhouse Capital Partners raised over 9.5 billion Euros and stood 7th in aggregate.
- Intermediate Capital Group: After raising around 9.3 billion Euros in aggregate, Intermediate Capital Group stood 8th.
- Bridgepoint: Bridgepoint raised around 8.8 billion Euros in aggregate and took 9th
- Pamplona Capital Management: Pamplona Capital Management raised around 8.2 billion Euros and stood 10th.
If you want to work in a great company, choose any of the above, and work your way up to the top. Let’s have a look at the recruitment process.
First, let’s go through some statistics so that we can understand how it is in the UK.
Every top private equity firm receives around 250-300 applications for every entry-level position. Out of 300 applications, only 30 are called for an initial round. Out of 30, only 10 are called for the first round of interviews. And after the first round, only 2-3 are called for the last round.
So, if you have been given a call from reputed private equity for an interview, that means something is special in you.
Let’s see the process of recruitment –
It would be best if you started by submitting online applications. Make sure that you do it with sincerity because only 10% of applications are shortlisted and asked for the first fitment interview.
An initial round of interview:
The initial round of interviews is usually taken by recruitment agencies. They need to see whether you are really fit for the job or not. They will ask you questions like –
- Why do you want to work for this firm?
- Why do you think private equity is a good fit?
- Walk me through your resume;
- Tell me something about yourself etc.
Second round (usually first round at PE firm):
You may have honed your interview skills, but this round is the toughest; because this will test your skills and will expose you to the interview panel completely. In this round, you need to give a case presentation, and the stipulated time will be limited. And after that, you need to go through a skill test of financial modeling basicsFinancial Modeling BasicsFinancial modeling refers to the use of excel-based models to reflect a company's projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact., which is by no means an easy nut to crack. If you ever want to prepare for an interview, prepare for this round. Because only the best will get through this round.
Once you are through the second round, then there would be another test. It wouldn’t be like an interview, but the PE firm would like to know whether you’re a culture fit or not. So, they will take you out on lunch with senior team members. And they will judge you whether you are a good team player, can face their clients, how you approach the work, and so on and so forth. The whole thing would be pretty informal.
If everything goes well, it’s time to face the partners and HR. You will be interviewed by 7-10 people panel, and you will be asked the vital questions to see whether you are really a hit or a miss. Very few candidates reach this level. Usually, 2-3 candidates are selected for this final round. And the best is chosen for the job after this.
Culture is usually like New York. You need to work hard and be diligent about all the financial models that you build. You need to be very particular about the financial models because these are not ordinary models; instead, these models need in-depth attention and a detailed approach.
Depending on the funds you’re working on, your work hours would be proportionate. If you’re working on smaller funds, you will enjoy a great work-life balance and, as a result, will earn lesser. But if you dream of earning big bucks, work on bigger funds; the only side effect of which is long hours, all-day work, and no work-life balance.
In the beginning, you will build a lot of models; but later, you need to depend on them and will work on something else. For example, you may need to call a bunch of prospects each week to see what your firm can buy.
But the PE environment is much better than investment banking. And you won’t go after only “deals”; rather, your job is to find “great deals” until which you need to work and find out which will be better for the company.
Salaries in Private Equity in the UK
London is the hub of top private equity in the UK. And every top-notch firm wants the best talents. As a result, recently, they have begun to increase the salaries of even junior players.
The issue is not in attracting talent. Many people are there to join top PE firms, but the best talents are few, and every top-notch firm wants the best. Moreover, every PE firm wants to go beyond the competition with the investment banks and wants to put an end to the question mark on PE salaries.
According to Kea Consultants, private equity firms have increased the salaries of junior employees by 20% in the last 12 months.
An associate in a top private equity firm earns a basic salary of 75,000 UK Pounds (the US $98,000) to 100,000 UK Pounds (the US $130,000) per annum. And as per the Kea Consultants, this is a 10% increase compared to the salary offered in the previous year.
Even bonuses are a big plus. Associates earn around 56,000 UK Pounds (US $72,300) to 102,000 UK Pounds (US $131,700) per annum as bonuses. If we look at the average, it’s stunning as well, around 71,000 UK Pounds (the US $91,700) to 84,000 UK Pounds (US $108,500) per annum.
That means an associate in a top private equity firm earns around 150,000 UK Pounds (the US $190,000) per annum on an average.
Here’s the graph to illustrate the salary structure in mega private equity in the UK –
There are two things that are important here.
People who join private equity firms in the UK in their early twenties usually switch to something else. And people who join private equity firms in their early thirties don’t seem to switch careers because they have already done so.
So if you would like to switch careers from private equity, what would you do? Well, there are many options, and it’s up to you to choose which one is right for you.
The usual answer is to move to hedge fundsHedge FundsA hedge fund is an aggressively invested portfolio made through pooling of various investors and institutional investor’s fund. It supports various assets providing high returns in exchange for higher risk through multiple risk management and hedging techniques. where money can be made rapidly. If not, hedge funds, you can become a venture capitalist who concentrates mainly on start-ups. You also have options for going back to the financial advisory if you want. Or else, you can start your own fund or own firm. Or you can join a portfolio company.
The question is why you would like to switch in the first place! The answer can be an easy launch-pad for you to start where you would like to move toward.
Even if private equity in the UK market is not doing excellent, it is still better than Australia. And there is a massive chance that it would come back strongly in a few years. The ideal way to think about this is to hope for the best and know that top-notch professionals are always bullet-proof for all sorts of downturns in the economy.
This article has been a guide to Private Equity in the UK, their services offered, recruitment process, their culture, list of top private equity firms in the United Kingdom, salaries, jobs, and exit opportunities. You may also have a look at the following article for learning more about Private Equity