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The Brave and the Bargain Hunters Swooping In on U.K. Buyouts

Benjamin Robertson and Jack Sidders

(Bloomberg) -- Turns out Brexit Britain isn’t an ugly duckling to all investors.

Private-equity firms more than tripled the value of U.K. purchases in the past 12 months, according to the accounting firm BDO LLP. They exploited a collapse in the pound and skittishness that had firms such as Sanford C. Bernstein calling British equities uninvestable amid the political chaos.

“Over the last 12 to 18 months we have seen a significant increase in interest from our clients in pursuing public-to-private deals,” Kem Ihenacho, the global vice chair of the law firm Latham & Watkins LLP’s private-equity team, said in an interview.

In the 12 months through Sept. 4, there were 14 billion pounds ($18 billion) of public-to-private deals, up from 3.7 billion pounds year-on-year, the BDO data showed. Since then Chicago-based Thoma Bravo agreed to buy Sophos Group Plc, a cyber-security firm, for $3.8 billion.

The largest such deal so far this year was the $5.7 billion purchase of theme park operator Merlin Entertainments Plc by a Blackstone Group Inc.-led consortium, which is expected to close by year-end.

Brexit has turned the U.K. into the best buying opportunity among developed economies, says Jonathan Gray, president of Blackstone. “It’s not just about what’s coming, it’s about the price I have to pay for it,” Gray said in September. He cited the 2018 purchase of properties from the Network Rail Infrastructure Ltd., a bet on British commercial real estate. “We feel like you’re getting compensated.”

With the economy at risk, there are also opportunities to pick up damaged goods. Intermediate Capital Group Plc hired Alan Ross from Cerberus Capital Management LP to run a unit looking for distressed assets, outgoing chairman Kevin Parry said in an interview. The London-listed firm manages about $42 billion, having spent three years working out which sectors will be hit by Brexit.

The firm had been investing in U.K. companies that were domestically focused or weighted toward non-European markets, and is awaiting the fallout on manufacturing and distribution industries, Parry said.

The tumult isn’t for everyone. Two U.K. mid-cap focused private-equity funds gave up trying to raise new capital as investors balked, said Markus Benzler, head of the private-equity fund of funds business at UBS Group AG’s asset-management unit.

In contrast, Derek Jacobson, co-chief investment officer of Madison International Realty, a private-equity firm that specializes in real estate, is getting ready to act fast.

In 2016, after the stunning referendum result, Jacobson was not ready for the sudden fall in property stocks. “I would like to be more prepared this time,” he said.

To contact the reporters on this story: Benjamin Robertson in London at brobertson29@bloomberg.net;Jack Sidders in London at jsidders@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, James Hertling

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