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.
Key highlights include
- Walker portfolio companies did not achieve a similar level of good additional disclosure in their audited financial statements this year, with only 43% doing so to at least a good standard and the remaining 57% doing so to a basic standard. (2023: 60%). However there were a large number of annual reports that were very close to achieving ‘good’ overall, only missing out due to one area of disclosure.
- It was positive to note that the number of addendums required this year has significantly fallen this year (26% vs 52% in 2023), following the increase over the last two years.
- The quality of disclosure in respect of social, community and human rights issues remained unchanged compared to last year, although notably the quality and depth of the disclosures in relation to environmental matters has improved once again.
- All BVCA members in scope included information on their website about themselves, their investors and their portfolio companies.
- The vast majority of portfolio companies upheld their transparency requirements and published annual reports and mid-year updates in a timely manner (81% and 85% respectively).
- Walker portfolio companies slightly underperformed the public revenue company benchmarks at a revenue increase of 5.8% versus 6.1%.
- Capital productivity increase in Walker portfolio companies exceeds public company benchmarks at 9.2% versus 5.0% growth per annum (2023: 11.9% versus 1.0%).
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.
“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.”
“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.”
Read the full press release and reports on the Private Equity Reporting Group's website using the buttons below.
