Private equity investment in the UK has fallen to its lowest level in more than five years, according to new analysis from KPMG. The firm’s study of UK transactions involving private equity investors over H1 2019 indicates that both deal volumes and value have fallen below levels last seen in 2014, with 384 deals completing between January and June 2019 with a combined value of £28.5bn. This compares to 483 deals totaling £31.5bn which completed during the first half of 2014.

The latest figures represent a 35% fall in volumes and 40% decline in values when compared to the same period last year – H1 2018 saw 594 deals with a combined value of £47bn.

In the UK’s middle market, the number of deals involving private equity also fell sharply, from 273 in H1 2018 to 199 in the first six months of this year. However, the total deal value actually increased – with £18.4bn invested in H1 2019 compared with £17.69bn in H1– suggesting that for the right opportunities, investors in the middle market are still willing to deploy significant funds.

The significant amount of capital in the market, coupled with a dearth of quality assets for sale, has prompted private equity bidders to compete harder and harder in auctions over the first six months of the year. It has also prompted other changes in approach, with investors engaging due diligence providers early, together with accepting greater reliance on vendor due diligence; underwriting debt and also taking commercial views on critical deal issues – all with a view to being able to present a very deliverable, fully-funded bid which can be closed out in a very short timeframe, often a matter of days after being awarded exclusivity.

Over the course of 2018, private equity investment in the UK’s middle market was relatively diverse at a sector level, with TMT, financial services, and healthcare all attracting significant attention from PE funds. However, of these three sectors, only TMT saw increased investment in the first six months of 2019 – up 66% in value compared to the latter half of the previous year.

Looking ahead, economic and geopolitical uncertainty is expected to affect PE investment throughout the third quarter and into Q4 with deal decisions likely to be deferred until the outcome of Brexit is known.