PERG | Annual review finds private equity-backed businesses continue to outperform public companies

Analysis shows that aggregate trading results for PE-backed companies moderated slightly versus comparative levels in 2021, with revenue and EBITDA growth since acquisition of 7.0% (2021: 7.8%) and 4.9% (2021: 6.0%) respectively.
PE backed businesses did however outperform the public company benchmarks at a revenue increase of 7.0% Compound Annual Growth Rate (CAGR) since acquisition versus 5.4%, partly driven by the growth of the consumer sector.
Organic revenue and organic EBITDA of PE backed companies increased by 5.7% and 3.2% CAGR respectively since acquisition (2021: 4.9% and 4.3%).
Disclosures show an improvement in quality of disclosure on board composition and strategy, but a deterioration in standard of compliance regarding risks and non-financial KPI’s.
Private equity investments average hold time of 5.9 years is flat on last year.
Employment under PE ownership has increased by 2.0% per annum (2021:1.5%) since acquisition.
Portfolio companies had an average leverage ratio of 6.5x gross debt to EBITDA at acquisition (2021: 6.6x) compared with 6.9x at the latest date or exit (2021: 6.9x).
Equity return from portfolio company exits was 3.0x the public company benchmark, consistent with last year.

The latest Private Equity Annual Public Reports, the 16th in a series of yearly reports compiled by and for the Private Equity Reporting Group (PERG), the independent body setup to assess the industry on behalf of the British Private Equity & Venture Capital Association (BVCA), has been published today.

Collectively, the ‘Annual Report of the Private Equity Reporting Group’, the ‘Good Practice Reporting Guide for portfolio companies’, and the ‘Annual Report on the performance of portfolio companies’ demonstrate the private equity industry’s commitment to good practice financial reporting.

Compliance and disclosures

11 companies did not comply with any of the requirements. None of these companies are backed by BVCA members. These companies are as follows.

Portfolio Company	Private Equity House
Acacium Group	Onex
Amey	One Equity Partners
Energy Assets Group	Asterion Industrial Partners
Equiniti Group PLC	Siris
Global Risk Partners Limited	Searchlight Capital Partners
Interpath Advisory	H.I.G Capital
London City Airport	Borealis, Ontario TPP, (Wren House, AIMco)
McCarthy & Stone	Lone Star Funds
Punch Taverns	Fortress Investment Group
Pure Gym	Leonard Green & Partners
TES Global	Onex

The vast majority of the annual reports reviewed for this report are compliant with the Sir David Walker guidelines for disclosure and transparency in private equity, with 60% doing so to at least a good standard (which was comparable with the previous year).
One company was considered non-compliant, having failed to comply with two disclosure requirements. They have committed to include these disclosures in future reports.

Portfolio Company	Private Equity House
Alexander Mann Solutions (non-compliant is in two areas of the additional disclosure requirements)	OMERS PE

The PwC review of a sample of the population of PE-backed companies shows:
- A continued improvement in the quality of disclosure on board composition and strategy.
- A deterioration this year in compliance on reporting non-financial KPIs.
- Continued non-compliance with disclosures on social, community and human rights issues and gender diversity information. However, this non-disclosure was rectified with use of addendums to annual reports.

Most companies upheld their transparency requirements and published annual reports (81%) and mid-year updates (83%) in a timely manner.

Financial performance

Highlights from this year’s portfolio company performance report include:

2022 trading performance in the current portfolio companies outperformed the public company benchmarks at a revenue increase since acquisition of 7.0% and EBITDA increase since acquisition of 4.9%. This is partly driven by the growth of the consumer sector. This was compared with 7.8% and 6.0% CAGR respectively in 2021.
The average timeframe of UK Private Equity investment in portfolio companies remained at 5.9 years, from acquisition to exit (2021: 5.9 years).
The equity return from portfolio company exits is 3.0x the public company benchmark when measured over the same period (2021: 3.0x); c.59% of the additional gross return can be explained from the higher levels of financial leverage employed. The remaining 41% of return can be attributed to strategic and operational improvements.
In aggregate, combined plus exited portfolio companies had an average leverage ratio of 6.5x gross debt to EBITDA at acquisition, compared with an average leverage ratio of 6.9x at latest date or exit (2021: 6.6x and 6.9x respectively).
Portfolio companies show an increase in leverage under PE ownership, partially driven from the impact of Covid-19. Current portfolio companies had an average net leverage ratio of 5.9x net debt to EBITDA at acquisition compared with an average (net) leverage ratio of 7.2x at latest date or exit.
Reported employment under PE ownership was slightly below the private sector benchmark of 0.7% growth versus 1.0% growth with the healthcare sector underperforming others in terms of year-on-year organic employment growth. This was in comparison with nil growth in 2021.
The average employment cost per head in the portfolio companies has increased by 2.7% per annum under PE ownership (2021: 2%), lower than the UK private sector benchmark (2021: 3.5%).

Nick Land

Chair of PERG, said:

“Today is a chance to reflect on and quantify the considerable contribution private equity makes to the UK economy. Most of the reports reviewed were compliant with the Walker Guidelines and were produced to a good or excellent standard, with particular improvements in the depth of disclosures relating to financial KPIs and financial position, which is positive given the difficulties businesses are facing. Disappointingly, one company was non-compliant, having failed to comply with multiple disclosure requirements. This year, we also noted a deterioration in reporting on non-financial KPIs and a need to be more compliant on disclosures on social matters and gender diversity. We hope to see private equity firms continue to meet calls for greater quality disclosures in this pivotal moment for our sector.”

Michael Moore

Chief Executive of the BVCA, said:

“The PERG guidelines are a world leading tool for transparency and disclosure for large private equity-backed businesses and at the BVCA, we are glad to see that our entire membership within the population is compliant. It is our goal to demonstrate the value, sustainability and transparency of private equity investment in the UK, so it is encouraging to see increased disclosures on financial position, business strategy and employees. This year’s reports also show the impact of the uncertain macroeconomic environment, legacy COVID-19 issues and the high rate of inflation on the private equity industry. Developing higher standards is a shared aim of our members, and all private equity firms in scope of the guidelines need to embrace increased transparency and disclosure. We will be working this year with private equity firms and their portfolio companies to develop their reporting further. Doing so enables us to collectively tell the story of the vital role played by private equity in the UK economy, and through that build greater trust with our key stakeholders.”

Contribution to UK Economy

According to wider BVCA research, 2.2 million jobs are supported by private equity and venture capital in the UK. PE and VC backed businesses directly generated £137 billion of GDP in 2023, which is equivalent to 6% of the UK’s total GDP. Additionally, new findings from the latest PERG report show:

Around 28% of jobs in the portfolio companies (which includes both part time and full-time jobs) have annual compensation of less than £12,500 (2021: 31%). This is impacted by a high proportion of workers in the health care and consumer services sector.
Average annual employee compensation growth under PE ownership of 2.7% is slightly lower than the UK private sector benchmark of 3.5% CAGR, however represents an increase compared with 2021 performance (2021: 2.1% CAGR).
Female representation is 51% (2021: 51%) at an overall employee level across the current portfolio companies and 20% (2021: 26%) at the Director level. By way of comparison, 40% (2021: 37%) of FTSE 250 board positions are held by females.

Employment

The PERG, which was established in 2008 and makes periodic recommendations to the British Private Equity & Venture Capital Association (BVCA), reviews the industry’s compliance in adherence with the Walker Guidelines. The Guidelines provide a framework for the private equity industry to improve the public’s understanding of industry activities and address concerns about a lack of transparency.

Overview of the reports

The UK Private Equity Annual Public Reporting process brings together three separate annual reports which seek to promote enhanced reporting and disclosure by the largest UK portfolio companies and their private equity owners. Designed to be read in tandem, the reports underpin the private equity industry’s efforts to increase transparency and support the UK economy.

Read the reports

Published 18 January 2024

Download the Private Equity Reporting Group Sixteenth Annual Report

Download the EY Report on the Performance of Portfolio Companies

Download the PwC Good Practice Reporting by Portfolio Companies Guide

Media Contacts

For further information, to learn more about the PERG or the Guidelines contact [email protected].

Notes to editors

1. About the UK Private Equity Annual Public Reports

The UK Private Equity Annual Public Reports bring together three separate annual reports which seek to provide enhanced transparency and disclosures by some of the largest UK portfolio companies and their private equity owners.

The reports fall within the scope of the Walker Guidelines, first established in 2007, which provides the framework for the private equity industry to disclose information relating to UK-based portfolio companies and encourage a greater level of disclosure across the industry. The reports aim to present independently prepared information clearly and simply, to inform the broader business and public debate on the impact of private equity ownership on large businesses.

The Annual report of the Private Equity Reporting Group can be found here. It sets out the findings of a review of a sample of 25 portfolio companies (one third of the population) to report on the level of compliance with the Guidelines on Transparency and Disclosure in Private Equity revised July 2014 (‘the Guidelines’). The population was confirmed as at 30 April 2023.
The EY annual report on the performance of portfolio companies can be found here. The report covers 81 portfolio companies, as defined according to the criteria of the Walker Guidelines, as at the 2022 financial report year, as well as a further 116 portfolio companies that have been owned and exited since 2005.
The PwC Good Practice Guide on improving transparency and disclosure can be found here. This guide is prepared to assist portfolio companies when prepare their additional disclosures as well as to demonstrate the best practice in a particular the year.

Making the industry’s annual reports more accessible

As well as publishing each of the reports separately, the key findings have been brought together in an annual overview, as the Private Equity Annual Public Reports. All reports and key metrics are available via a microsite, making the information readily available.

The annual reporting process include sector breakdowns on data points including changes in growth, productivity and financial leverage that portfolio companies experience under private equity ownership.

2. The Walker Guidelines

In February 2007, the BVCA asked Sir David Walker to undertake an independent review of the adequacy of disclosure and transparency in private equity, with a view to recommending a set of guidelines for conformity by the industry on a voluntary basis. This review resulted in the publication of the Guidelines in November 2007.

The Guidelines have four main components – three that apply to portfolio companies and a fourth that applies to the private equity firms managing or advising funds that own the portfolio companies:

Portfolio companies should prepare disclosures as stipulated in the Guidelines in their audited annual report and financial statements and prepare a mid-year update.
Portfolio companies are required to publish their annual report and a mid-year update in a timely and accessible manner on their company website.
Private equity firms should publish certain disclosures on their own website.
Portfolio companies are required to share certain data, which is presented in an aggregated performance report by EY to illustrate the contribution of private equity to the UK economy.
The Guidelines operate on a ‘comply or explain’ basis.

3. The Private Equity Reporting Group

The Private Equity Reporting Group (PERG) is an independent body that was established in March 2008 to monitor conformity with the Guidelines and make periodic recommendations to the BVCA for changes to the Guidelines if required.

The PERG is chaired by Nick Land, a non-executive director on a number of boards and previously the executive chairman of EY in the UK. He is supported by two other independent members: Baroness Drake, a labour peer and former president of the TUC, and Glyn Parry, an experienced finance director working with FTSE companies such as BT Group.

Representing the private equity industry are Ralf Gruss, Chief Operating Officer at Apax Partners, and Tony Lissaman, Chief Operating Officer of 3i Group’s private equity business.

More information about the PERG can be found here.

Population within the scope of the Walker Guidelines

The review covers 81 portfolio companies that fall within the scope of the Guidelines and the 71 firms that back them (private equity firms and those operating in a private equity-like manner).