Private equity’s regional scene is thriving, particularly in Manchester. Some of this is the preserve of the large national firms, but smaller regional outfits are getting their slice of the pie as well.

Evening scene of Manchester to illustrate article on private equity in Manchester
“Outside London, the hottest spot is Manchester,” says Edward Stead of Pinsent Masons

Though the northern England private equity market represents only around a quarter of the overall UK market, London’s monstrous size disguises just how big the scene in that region is. Indeed, it is one of Europe’s largest – as big as each of France, Italy and the Nordics.

The Lawyer December magazine front cover Women in Private EquityThis article is taken from The Lawyer’s monthly magazine. The December issue contains proprietary data and analysis on private equity in UK and US firms, plus in-house interviews and key findings from the UK 200: Financial Management report. To subscribe please click here.

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Private equity on the up in Manchester

While Birmingham, Leeds and Manchester have all been centres for northern private equity, in recent years there have been changes. As Manchester has increasingly become the North’s major commercial hub, so many private equity houses which previously had offices in all three cities have closed up in two and consolidated in the North West.

“That’s certainly good for Manchester,” says Addleshaw Goddard partner Paul Medlicott, “and I think it’s good for the region as a whole too. While those outfits had offices all over the place, their influence was diluted. We now have a hub for private equity in Manchester, and there are now 18 private equity houses with an office on the ground here, focused on the North.”

“You need the support around
you first and relationships are important, so you need a local market presence too” 
Paul Medlicott, Addleshaw Goddard

Eversheds’ Andrew Phillips agrees – but says that after a slump, Birmingham is making a resurgence.

“People were flocking out of Birmingham a few years ago but that trend has been reversed,” he says. “Certainly, a lot of the people in the Manchester and London houses have been spending time in Birmingham recently.”

As for Leeds, “it always ticks along: there are good businesses that come out of that market,” says Phillips. “Lots of Manchester people began their careers in Leeds and it is so easy to cover from the North West, so perhaps they see less need for boots on the ground.”

“Outside London, far and away the hottest spot is private equity is Manchester,” concurs Edward Stead of Pinsent Masons. “Its success probably comes at the expense of Leeds. I don’t think Birmingham suffers because of Manchester so much than because of London – but it is true that people are feeling more positive about that city now. Some of the Manchester funds are opening in Birmingham and they clearly ­perceive opportunities in that market.”

Night time city scene of Birmingham to illustrate article on private equity in Manchester

“Some Manchester funds are opening in Birmingham [above] and they clearly perceive opportunities in that market” Edward Stead, Pinsent Masons

Manchester reigns supreme, however. Another interesting dynamic that has come into play in the past two years, says Medlicott, is the arrival of international ­private houses that are bypassing London to make Manchester the location of their only UK office: “They came here directly, in part because they might be a little more lost in London and they can have more impact in the North, but also because there are many businesses they would like to invest in outside the M25.”

There is an idea in some quarters that a ‘Manchester mafia’ exists and that the city is something of a closed community.

Medlicott says not.

“There is a vibrant community locally and most people know each other, so it’s a bit like a village, and you do have to get to know the market and the region, but we work quite hard to make sure people can come in from outside,” he says.

What is true is that lots of firms have opened in Manchester in the past three years, but have not started with private equity practices.

“You need the support around you first,” says Medlicott, “a strong banking team, tax, employment, and so on, and relationships are important so you need a local market presence too.”

Addleshaws, Pinsents and DWF are widely regarded as the biggest private equity players in Manchester

But once they are established there is plenty of work to go after. Local private equity houses can typically make investments from under £1m up to £250m. The national and international firms take on many the larger investments, with smaller firms hoovering up the lower value transactions.

Addleshaws, Pinsents and DWF are widely regarded as the biggest private equity players in Manchester, with DLA Piper, Gateley and Squire Patton Boggs among the other notable names in the market. Addleshaws’ northern private equity team advised on 35 transactions in the 12 months leading up to Q3 2017. A couple of typical transactions saw the team advising NorthEdge on the acquisition of Future Industrial Services and 3i and YFM on the sale of Go Outdoors. Pinsents, meanwhile, advised LDC on its management buyout of Manchester’s Hill Biscuits and Livingbridge on its investment in Northern firm Stowe Family Law in 2017. Eversheds, meanwhile, hired Phillips from Pinsents earlier this year to reinvigorate its Manchester presence.

Volume versus quality

Volume of work is not a concern; a lack of quality is, with prices being driven up for the relatively few desirable assets on the market.

“Where there’s a quality asset up for grabs there’s a scramble for it,” says Phillips. “I’ve encountered several situations where clients think they are paying the highest price and then find themselves being substantially outbid: it’s not something I’ve seen before.”

Then there is the threat of the accountancy firms.

“It’s an acute issue for all of us in Manchester,” confirms Phillips.

“Where there’s a quality asset up for grabs there’s a scramble for it” Andrew Phillips, Eversheds 

KPMG, PwC and EY have all dabbled in private equity but, says Medlicott, they are finding it harder to break into than mainstream M&A and other areas ancillary to their tax practices.

“There is probably lower hanging fruit for them,” he says.

And Brexit?

“It permeates every conversation but if you look at the stats, private equity has been pretty resistant to Brexit,” says Eversheds Sutherland’s Catherine Eley. “I personally completed a deal on the day of Brexit which was touch and go to start with, but we haven’t seen a drop-off in work. The uncertainty doesn’t help, but is it stopping private equity houses pressing ahead with deals? No.”

“Private equity houses have a lot of money to spend and even with the Brexit uncertainty they have to deploy it,” agrees Stead. “We remain pretty positive.”

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The Lawyer December magazine front cover Women in Private EquityThis article is taken from The Lawyer’s monthly magazine. The December issue contains proprietary data and analysis on private equity in UK and US firms, plus in-house interviews and key findings from the UK 200: Financial Management report. To subscribe please click here.

If you already have an online subscription, you can contact customerservices@thelawyer.com to upgrade to print and online.