18.12.2024

Record number of firms comply with private equity financial reporting and show performance rebalance post-pandemic

The latest Private Equity Annual Public Reports, which look at the industry’s financial performance and disclosure, have been published today.

The 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.

The three reports are:

Annual Report of the Private Equity Reporting Group

Good Practice Reporting Guide for portfolio companies

Annual Report on the performance of portfolio companies

The 17th in the series, the reports are compiled by and for the Private Equity Reporting Group (PERG), the independent body responsible for monitoring the industry’s compliance with the Walker Guidelines.

A record number of portfolio companies were in scope (90) with the Walker Guidelines this year. The Guidelines provide a framework for Private Equity to improve understanding of the industry’s activities and address concerns about a lack of transparency.

Reporting Highlights

i. Compliance and Disclosures

The vast majority (81) of the 90 firms which were in scope of the Guidelines this year were compliant. Nine did not comply with any of the Guideline’s components: enhanced disclosures, publication of reports, and provision of data. This is a lower number of non-compliant businesses compared to the previous year (11 out of 81 in 2023).

Of particular note is Alexander Mann Solutions, owned by OMERS PE which improved in multiple areas of compliance this year and has been removed from the non-compliant list. All BVCA members within the scope of PERG Guidelines were compliant.

Of the nine non-compliant firms, Biffa (owned by Energy Capital Partners), is new to the population. However, the others also failed to comply the year before.

The full list of non-compliant firms is:

1. Acacium Group (owned by Onex)
2. Amey (owned by One Equity Partners)
3. Biffa (owned by Energy Capital Partners)
4. Equiniti Group (owned by Siris Capital)
5. Energy Assets Group (owned by Asterion Industrial Partners)
6. Interpath Advisory (owned by H.I.G Capital)
7. PureGym (owned by Leonard Green & Partners)
8. Punch Taverns (owned by Patron Capital)
9. TES Global (owned by Onex).

A larger proportion of the portfolio companies reviewed achieved a ‘basic’ overall assessment on their enhanced Walker disclosures this year. Meeting the Guidelines to a ‘basic’ standard is comparable to the disclosure required in the FTSE 250.

Of those that did comply, 43% prepared disclosures to at least a good standard which is a considerable drop on previous years (2023: 60%, 2022: 60%).

A growing number of portfolio companies are submitting a Statement of Compliance (78% vs 60% in 2023). This is evidence of a growing level of understanding amongst portfolio company owners of the Guidelines and their requirements, and is a proxy for the “fair, balanced and understandable” requirement under the UK Corporate Governance Code for listed companies.

The trend of basic disclosure around social, community and human rights issues, as well as gender diversity information, continued this year. There was also noted a deterioration this year in the standard of compliance with financial key performance indicators in a reverse of prior year trends.

ii. Financial Performance of Portfolio Companies (2023 financial reporting year)

Revenue & EBITDA: Since acquisition, the portfolio companies have grown revenue at 5.8% CAGR and EBITDA at 3.3% CAGR, which is slightly below the public company benchmark of 6.1% and 7.5% in 2023.
- The revenue and EBITDA growth rates are materially impacted by two current portfolio companies. Excluding these two portfolio companies, the revenue growth rate for the portfolio companies is 6.8% versus 4.5% for the weighted benchmark and the EBITDA growth rate is 5.2% versus 6.3%.
On average over the past eight years, reported YoY revenue growth of current portfolio companies (10.3%) was higher than the public company benchmark (7.2%).
Employment: Reported employment under PE ownership has increased by 1.8% (2022: 2.0%) per annum since acquisition. Underlying organic employment growth (removing the effects of bolt-on acquisitions and partial disposals) is flat in 2023, in comparison with 0.7% growth in 2022.
- In 2023, organic YoY employment growth in the current portfolio companies is 0.4%, which is lower than the ONS private sector benchmark of 0.8% for the same period.
- On average over the past 10 years, portfolio companies reported YoY organic employment growth of 1.4% which is higher than the comparative for the ONS private sector benchmark at 1.1%.
Remuneration: Average employment cost per head in the portfolio companies has increased by 2.4% per annum under PE ownership (2022: 2.7%).
- Average annual employee compensation growth under PE ownership of 2.4% is lower than the UK private sector benchmark of 4.4% CAGR.
- Average employment cost per head increased YoY by 3.3% in 2023 compared with 2022, which is slightly lower than the UK private sector benchmark of 3.6% growth over the same period.
Productivity: GVA (Gross Value Added) per employee, increased by 3.0% per annum since acquisition. This is a slightly lower rate compared with the ONS UK economy benchmark (3.2%).
- On average over the past 10 years, portfolio companies reported YoY growth in GVA per employee of 3.8% which is higher than the average growth for the ONS private sector benchmark at 2.7%.
Leverage: In aggregate, combined current 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 6.8x at latest date or exit (2022: 6.5x and 6.9x respectively).
Length of investment: The average timeframe of PE investment in the portfolio companies is 6.0 years (2022: 5.9 years) for historical exits, i.e., from initial acquisition to exit. The current portfolio companies have been owned for an average of 5.0 years (2022: 4.4 years).

See EY’s Annual Report on the performance of portfolio companies for a full breakdown of the figures, including additional data on productivity and capital expenditure.

Refreshed Guidelines

The publication of the reports coincides with the announcement of a refreshed set of guidelines which will govern future enhanced disclosure, following several months of review, engagement and consultation with the industry and wider stakeholders. The enhanced guidelines will see greater levels of transparency expected of firms and hold them to a higher standard than even before. The changes include:

Increased disclosure on:
- Principal risks and uncertainties.
- Environmental matters (including climate, carbon emissions and transition planning).
- Diversity, Equity & Inclusion.
A modified scope to ensure that the Guidelines are capturing large UK companies that are acquired and owned by private equity. Changes include:
- Increasing the enterprise value at which a transaction is caught and adding in an additional revenue test to better reflect the size of the FTSE 250 (the chosen benchmark) and activity in the market.
- A commitment from PERG to do further work on a mechanism to including a new grow in and grow out aspect to the scope to capture the correct type of portfolio companies.
Clarifications on the definition of a private equity firm and an infrastructure asset in scope of the Guidelines.

View the Walker Guidelines here

Nick Land

Chair of PERG, said:

“Today is a chance to take stock of the progress the Private Equity industry has made since reporting began. The UK industry is more transparent than ever, with the greatest number of firms in scope of the rules, and low levels of non-compliance. These are good foundations to build on ahead of next year when we upgrade the standards we expect of the industry, introducing new types of disclosure and an adapted scope. That said, there continues to be a number of non-compliant portfolio companies which fail to do their part. We hope to see private equity firms continue to meet calls for greater quality disclosures.”

Michael Moore

Chief Executive of the BVCA, said:

“Private equity continues to be a stable source of investment for businesses across the country, and this year is no exception with over £20bn invested into UK companies. This should come as no surprise. Throughout the economic cycle, private equity firms have been supporting revenue growth for the businesses that they invest in.

“Nonetheless, no business is immune from persistently challenging economic headwinds, and it's clear from today’s reports that the performance of private equity-owned firms has taken a hit this year. However, over the long-term, private equity backed businesses create more jobs, increase productivity and drive revenue.”

Close

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 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 PwC Good Practice Guide on improving transparency and disclosure can be found here. This guide is prepared to assist portfolio companies when preparing their additional disclosures as well as to demonstrate the best practice in a particular year.
The EY annual report on the performance of portfolio companies can be found here. The report covers portfolio companies, as defined according to the criteria of the Walker Guidelines, as at the 2023 financial report year, as well as a further 119 portfolio companies that have been owned and exited since 2005.

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.