All we have heard for the last few years is that private equity firms – especially those based in the US – have plenty of ‘dry powder’ to make acquisitions, and the UK market is a prime target due to the low valuations of stocks here.

So why is it that several recent deals have failed to take off as the market expected, and what are the takeaways?

Earlier this week, New York-based private equity giant Apollo Asset Management announced that after months of chasing energy services and engineering firm John Wood Group (WG.) it was giving up and walking away.

What was notable about Apollo’s decision is that, having finally got its hands on the necessary due diligence material at the fifth time of asking, and at the prompting of the Scottish-based company’s shareholders, it decided not to proceed at all rather than make a cheeky offer.

That doesn’t mean there was something in the books it didn’t like, but given the talk at the start of the year about the ‘bargain basement’ valuations of UK companies being a catalyst for a pick-up in M&A (merger and acquisition) maybe Apollo decided there was a good reason Wood Group shares were down 80% from their 2017 peak.

In fairness, global M&A activity is down around 30% by volume this year according to figures from GlobalData due to a combination of reduced risk appetite and volatility in financial markets.

‘The current market situation highlights the need for dealmakers to be more strategic in their investments and consider the impact of changing market conditions’, says Aurojyoti Bose, lead analyst at GlobalData.

So, are buyers like Apollo just being more ‘strategic’ or is there something else at work?

Even some relatively small deals have failed to get off the ground, such as the plan by UK private equity firm Marwyn to refinance Unbound Group (UBG:AIM), the owner of Hotter Shoes.

Having proposed a cash injection of £10 million last month in exchange for a share in the business, Marwyn withdrew its offer last week and packed up its tent.

Just days later, Unbound issued a trading update warning conditions had worsened since its last update in January and revealed it was in talks with its lenders to waive covenants on its short-term debt to avoid running out of cash.

Therefore, rather as banks are tightening their lending standards, it looks as if private equity firms are being more selective and tightening their buying criteria, so the fact a target company looks ‘cheap’ is no longer enough to justify setting the gravy train in motion. 

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