Research from RSM UK’s latest ‘The Real Economy Report’ suggests almost half of middle market businesses in the UK will seek private equity finance in the next 12 months.
According to the report, 47% of businesses expect to use private equity finance in 2023, rising from just over a third (36%) in October 2022, meaning it remains the most popular finance avenue to raise capital and ensure growth.
The survey also revealed that over a quarter of businesses (28%) planned to take out bank loans, and a further quarter (26%) intended to use public markets to raise funds.
Nearly half of businesses surveyed (44%) said that making capital investments was the main reason for accessing finance in the next 12 months, to improve efficiency and productivity, grow the business, and cut costs.
Just under a third (28%) of businesses said restructuring their supply chain was the most important investment priority in the next 12 months, followed by entering new markets (22%) and expanding internationally (19%).
The middle market also seems more confident in its ability to navigate economic headwinds.
When asked about the single biggest risk to their business, higher energy costs remained the top response at 14%, but this fell from 21% in October 2022.
In addition, results showed that almost half of businesses are still consistently accessing finance to make capital investments (44%), up from 43% in October 2022. And over three quarters (76%) of middle market executives said their business was prepared for recession.
Jasper van Heesch, director and private equity senior analyst at RSM UK, said: “Private equity is a highly sought-after method of raising capital in the middle market, as it remains an available source of capital at a time when other investors have either delayed decision-making or pulled out altogether due to economic uncertainty.
“There is currently a significant amount of capital available ($1.2 trillion globally) for private equity investors to deploy, so looking further into 2023 we expect private equity to continue to be active.
“There will be some pressure on the sector regarding further capital raising by funds and an increase in the cost of debt which is often used in buyouts, which will negatively impact transaction volumes, and companies seeking capital backing will experience competition for funding in an ever-increasing buyers’ market.
“However, private equity is an attractive option for many companies seeking capital to grow, enter new markets and make acquisitions, and seeking strategic partners who can help navigate the current climate.
“Businesses that have a compelling and robust strategy and growth plan in place that they are already delivering on and have an eye on downside risks will be in a stronger position to attract private equity investors.”
