The Expansion of Private Equity Finance in the UK in the Late 1990s and the US Context of the Collapse of the dot.com Boom

Abstract

The surplus of capital in the US accumulated in the context of the dot.com boom provided the impetus for PEF firms and investment to transfer to Europe. Europe was a (mainly) new target for PEF activity deriving from the US. A newly integrated Europe now provided improved liquidity conditions based, for example, on emerging bond markets. Europe, including the UK, also had relatively unexploited equity markets, which meant that there were many more currently low leverage targets for larger LBOs. The UK was the main destination for the transfer of firms and funds for a variety of reasons. The UK already had a developed PEF market and the capital markets and financial infrastructure of London provided a nodal point for liquidity that could be exploited. New Labour was also eager to attract new sources of capital and finance to the UK and provided a tax regime designed to facilitate this. A new level of internationally integrated PEF then emerged. As a result in the late 1990s PEF fund solicitation and LBO activity began to grow in the UK in the same fashion that it had begun to expand in the US. This was then briefly brought to a halt by the collapse of the dot.com boom and the market crash of March 2000. In this chapter, I set out the conditions of the growth of PEF in the UK in the late 1990s and the specific circumstances of the dot.com collapse.