Private Equity Targets and Post Investment Performance: A Study of the Corporate Sector in the North and Regions

Executive Summary This report contributes to policy efforts to transform Northern growth, rebalance the UK economy and establish the North as a global powerhouse. We utilise a unique corporate level database covering the period 1998-present to analyse the characteristics of the corporate sector in the North of England with a view to identifying the size […]

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Private Equity Targets and Post Investment Performance: A Study of the Corporate Sector in the North and Regions

Sunday, November 13th, 2016

Executive Summary

  • This report contributes to policy efforts to transform Northern growth, rebalance the UK economy and establish the North as a global powerhouse.
  • We utilise a unique corporate level database covering the period 1998-present to analyse the characteristics of the corporate sector in the North of England with a view to identifying the size and nature of the potential target market for growth finance through mid-market private equity (PE) investments. For this purpose we focus on companies within the size band of £5-£15m in assets and/or turnovers in the £5m plus range across all industry sectors.
  • For purposes of this report, the North is defined as comprising the North East, North West, Yorkshire and Humberside, East and West Midlands government standard regions. The North consistently has around a third (32.5%) of the total number of active companies throughout the whole period 1998-2013.
  • Recent analysis by the Centre for Management Buyout Research (Imperial College Business School) shows an increase in the number of private equity backed buyout deals in the period since 2012 with the Northern regions showing most activity outside London and the South East. We estimate that the Northern regions have 44% of the stock of PE invested firms in 2013. In 2015 81 deals worth £5.5bn were completed in the Northern regions representing 38.0% by number of deals and 27.1% by value of total private equity portfolio investment last year.
  • Our data set is utilised to profile the characteristics of private equity targets and identify potential targets in the Northern regions. The profiling of private equity targets, using a multivariate technique that assesses all firm level characteristics simultaneously, generates a range of significant characteristics. Private equity targets tend to be established companies in terms of age and size and are more likely to have a higher proportion of tangible assets. The targets are in stable industry sectors with a lower than average failure rate and are less likely to be diversified (single product). Amongst the riskier sectors private equity investors have a preference for advanced manufacturing technologies and the high technology end of the services sector. The firms that private equity investors target are generally cash generative, profitable and have high interest coverage ratios on existing debt. The target firms are likely to have borrowed and have charges on assets. These firms have lower levels of equity and lower than average productivity thus providing opportunities for investors to realise performance improvement, and growth, post investment.
  • The model identifies a total of around 1187 potential prime private equity targets in the Northern Regions that represents 36% of the total identified targets.
  • Depending on whether analyses include full accounts with or without the productivity determinant, or are based on the full sample estimation and the 2009-2013 sub-samples, we find that the number of medium sized PE targets in the Northern regions ranges from 689 to 293, and the number of large PE targets ranges from 1399 to 794.
  • We model firm level productivity using a multivariate technique that isolates the efficiency differences in firms attributed to technological progress, knowledge and know-how, management practices and other factors that increase efficiency (i.e. total factor productivity (TFP)). We find a positive productivity differential of PE backed firms over the control group of companies of around 5.1% throughout the whole period, which is stronger in the pre-recession period (around 6.4%). The differential is around 4.1% above the control sample, in the recession and post-recession period. The models are re-estimated on the subsample of firms in the northern regions and reveal a stronger relative performance of private equity portfolio companies relative to the control sample (7.5% to 9.1%) with a particularly strong performance in the more recent period.
  • We find a positive profitability differential for PE over other company types of between 2.0% and 3.5%. The differential is higher in the recession period and strongly significant. The results hold for the models estimated using the northern region subsample of firms only.
  • We find a rolling three-year compound annual growth rate (CAGR) in employment of around 3%, showing that achieved productivity improvements are not at the expense of employment. Private equity portfolio companies appear to be particularly resilient in the recession period. We find no significant differences of growth rates for firms in the Northern region compared to the PE invested population.


Ethnic and Gender Diversity among UK Company Directorships. An analysis of over 15 million records of UK directorships

Friday, February 13th, 2015

There are two major strands of debate on the issue of diversity in the corporate sector. The first concerns diversity (ethnicity, gender) within the boards of directors of UK companies and the second concerns the incidence and contribution of migrant ‘entrepreneurs’ or ethnic businesses across the UK corporate business population. However, the evidence base on diversity within the population of UK companies is scant. Taking a snapshot of all directors and companies in a unique data-base at the beginning of 2014 provided details of 8,870,881 directors. The individual directors could be matched with 7,404,463 individual company registration numbers and associated company characteristics. The Cultural-Ethnic-Linguistic (CEL) classifications of directorships in the study uses both the recorded nationality of the director and the ONOMAP classification algorithm based on given and surname. Around 87% of the directorships analysed were individuals of UK/European roots or nationality and white. Between 4-5% were Asian (Indian, Pakistani, Bangladeshi) and around 1% Black African or Black Caribbean and just over 1% of Chinese origin. Around 5% were of Central or Southern European origin. These figures are in line with population demographics based on Census 2011. The picture that is revealed of directorships is more one of ethnic concentration in ethnic businesses focused on industrial sectors and location than ethnic diversity within company boards. Female directorships account for around 33% of the total and the proportion of female directorships declines with size of company (around 12% in listed companies, on average over the time period.). A large proportion of the directors who record a non-UK nationality are associated with UK subsidiaries of (large) foreign parent companies and these should not be classified as ‘migrant entrepreneurs’.

Alternative Finance for Business: Crowd Funding Conference

Monday, January 27th, 2014

Panel Members

Study on Family Business Survival widely reported

Sunday, May 26th, 2013


research by Nick Wilson (CMRC) and coauthors Mike Wright (Imperial College) and Louise Scholes (Durham) was reported in the press (example below)


Board Diversity

Tuesday, December 4th, 2012

Over the past few years, there has been growing momentum in Europe pushing mandatory quotas for women in the public arena but also on the boards of private companies

USA Today

Debunking private equity’s debt ‘problem’

Wednesday, November 28th, 2012

Research by

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CMRC and Imperial College Reported in Private Equity News and Fortune


and on CNBC

Alternative Sources of Finance for SME’s

Saturday, June 16th, 2012

“The arguments for alternative sources of finance are strong. More diverse financing gives businesses greater choice, promotes competition amongst finance providers, potentially reducing cost,

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and leads to greater resilience in the financial system. Some other countries, particularly the US, have a wider range of bank and non- bank finance options for businesses creating a more diverse and efficient market” .

Breedon Recommendations 2012

Guerrilla Guide to Finding Working Capital

Heterogeneity, Complexity and Performance in Family Firms

Thursday, May 31st, 2012

Professor Wilson presented a paper at the Theories of Family Enterprise Conference, University of Alberta, Canada (May 2012). The paper is a result of collaborative research with Imperial College and the University of Nottingham

Nick Wilson and Mike Wright presented at the Private Equity Forum in Paris 4-5th June, “Private Equity Portfolio

Company Performance through

the Economic Cycle”

Conference: Effects of Alternative Investments on Innovation and Growth

Friday, February 3rd, 2012


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for papers : Special Issue Conference (see details)