The Hollowing: How Private Equity Is Draining the London Market

The London stock market is losing companies faster than it can replace them, and private equity is the largest single reason why. The value of merger and acquisition deals targeting UK-listed groups has reached $182 billion this year, up sharply from $129 billion across the whole of 2025, according to Dealogic, while the exchange took on just seven new listings in the first half.¹ Bodycote, Gamma Communications, easyJet and Intertek are going to buyout firms; Segro, Schroders and Beazley are leaving to strategic acquirers, and the pipeline behind them shows little sign of thinning.² Beneath the headline takeover wave sits a second and quieter dynamic, driven by changes to the UK tax regime, and it is the relationship between the two that explains why London is being hollowed out rather than simply churned.

The Buy Side: Cheap and AI-Resistant

In an earlier piece (opens in a new tab), I set out the reasoning behind the buying side more fully. The short version is that UK-listed companies are cheap by historical and international standards, cheap enough that a buyout firm can pay a substantial premium and still expect the numbers to work. What has become clearer over recent months is the kind of company being bought. The takeovers are concentrated, though not exclusively, in sectors regarded as resistant to disruption from artificial intelligence, above all industrials and engineering. Financials have gone too, though Schroders and Beazley are both being bought by strategic acquirers rather than buyout firms. The industrial cluster is the striking one.

Bodycote is the clearest illustration. The Macclesfield industrials group, listed in London since 1972, agreed a £1.8 billion takeover by the US buyout group Veritas after a bidding contest that also drew in the European firm CVC. Its business is heat treatment for manufacturing, metal joining and protective coatings, the kind of physical, technically specialised work whose cash flows are not obviously threatened by the software disruption that has cooled private equity's appetite in other sectors. Gamma Communications, a business-to-business telephony provider, agreed a £1.1 billion offer from the UK firm Epiris, a premium of 53 per cent to its closing price of £7.32 on 7th April, the last trading day before the offer period began.¹ easyJet agreed a £5.7 billion takeover by Apollo after a bidding contest with Castlelake, and briefly returned to the FTSE 100 on the strength of the deal before its expected departure from public markets altogether in the first quarter of 2027.³

The common thread is quality. These are businesses with defensible and reasonably predictable cash flows, and they are being bought because London is the one major market where assets of this kind can currently be had at a discount.

The Sell Side: A Tax-Driven Acceleration

Running alongside the takeover wave is a surge in activity of a very different kind. Carried interest payments to UK private equity dealmakers rose by more than 50 per cent to £5.4 billion in the 2024-25 tax year, the largest pool since HMRC began collecting the figures in 2017, shared among almost 4,000 executives. The distribution was extraordinarily concentrated: just 230 of them took £3.5 billion between them, roughly two-thirds of the total, which suggests a handful of funds accounted for the bulk of the crystallisation.⁴

Six per cent of recipients took two-thirds of the carry

The timing was not accidental. Carried interest is the share of a fund's profits, usually 20 per cent above a minimum hurdle, that dealmakers receive when investments are realised. The Labour government, elected in July 2024, had promised to close what it described as a loophole in the way carry was taxed, and the then-chancellor set out a rise in the rate from 28 per cent to 32 per cent in April 2025, and to 34 per cent from April 2026. With a higher rate approaching, dealmakers had a clear incentive to realise their carried interest while the lower rate still applied. As one private equity tax lawyer put it to the Financial Times, "people did accelerate [exits] so that they could pay a lower rate".⁴

It is worth being precise about what this is, because the takeover wave and the carry surge are easy to conflate and they are not the same story. The carried interest tax falls on the dealmakers' personal profit share, not on the firms conducting the London takeovers, and the behaviour it drove was an acceleration of realisations in general rather than of London take-privates in particular.

The Mechanism That Connects Them

The two threads meet in how much of that carried interest was actually realised. A great deal of it was crystallised not by selling companies to outside buyers but by selling them into other funds run by the same manager, the continuation vehicle that has become the industry's standard workaround for a blocked exit market. A general partner moves an asset out of an older fund and into a newer one it also controls, books the gain, and returns some cash to the original investors, frequently rolling the dealmakers' own gains into the new vehicle so that their interests stay aligned with the incoming ones.

The important point is that this is not a true sale. Ownership does not pass to a new party. The general partner holds the asset before the transaction and continues to hold it afterwards. What the structure produces is the appearance of a realisation, sufficient to crystallise the carried interest and record a distribution, without any external buyer ever testing the price. With genuine exits scarce and a tax rise approaching, firms had every reason to lean on it in the run-up to April.

“

People did accelerate exits so that they could pay a lower rate.

A private equity tax lawyer, speaking to the Financial Times.

Two Kinds of Selling, One Hollowed Market

This distinction resolves what might otherwise look like a contradiction. If private equity is recording its largest carried interest pool in years by selling companies, why is the London market shrinking rather than merely turning over? The answer is that the two kinds of selling are mechanically different and pull in opposite directions.

The London take-privates are real external exits. When Apollo buys easyJet, Veritas buys Bodycote or EQT buys Intertek, a public company leaves the exchange and passes into private hands. Because very little is arriving to replace what departs, each of these deals shrinks the market. The value of deals removing companies from the exchange has passed $100 billion this year, and London has struggled to attract new listings to take their place.² Ministers and market figures have voiced growing concern that the exchange is losing a depth and breadth it cannot easily rebuild. A potential $10 billion flotation of Airtel Money this autumn would be the first real test of whether the listings side can answer back.

The continuation vehicle transactions are the reverse. They never touch the public market at all. They lift the carried interest figures and lend the impression of a busy exit market, but the assets involved are private companies passing between private funds under a single manager.

Where This Leads

My view is that this is a continuing trend rather than a passing one. London has grown steadily more active as a hunting ground over the past several months, and nothing in the present conditions suggests it is about to stop. The two forces behind it are both structural rather than temporary.

The continuation vehicle activity will persist for as long as the cash shortage that produced it persists. Investors in private equity funds have been receiving less cash back than they are accustomed to, and continuation vehicles are one of the few ways a firm can return capital and bring in fresh investors when it cannot sell cleanly. That shortage is itself a consequence of a nearly shut IPO market, in which only the very largest listings have succeeded, and of higher interest rates, which make the debt on existing holdings more expensive to service and new deals harder to finance. Until the IPO route reopens properly, firms will keep reaching for the synthetic exit.

The buying side has a forward logic of its own that is worth drawing out. The firms sweeping up AI-resistant industrials and engineering businesses in London are not only buying cheap. They are buying the kind of company that should still be valuable, and still saleable, once the public market reopens. A business whose earnings are not threatened by automation is a business that can be floated again in a few years, plausibly at a considerably higher price than it is being taken private for today. Read that way, the current wave is less a run of opportunistic bargains than a deliberate accumulation of durable assets, bought at a discount now with a public exit in mind later.

If that reading is right, the hollowing of the London market is not a one-off event but the early stage of a cycle. The exchange's most resilient companies are taken private cheaply, held through the drought, and in time returned to public markets at a profit, by which point London will have spent years without them. The tax changes sharpened the timing of what happened this year, but the deeper driver is the same exit drought that has shaped private equity since 2022, and it has not yet lifted.

Footnotes

1. Financial Times, Private equity firms snap up more London-listed companies (opens in a new tab), 1st September 2026. ²

2. The Guardian, London Stock Exchange to lose three more firms after takeover offers (opens in a new tab), 1st September 2026. ²

3. Evening Standard, EasyJet returns to FTSE 100 ahead of private equity takeover (opens in a new tab), 2nd September 2026.

4. Financial Times, Private equity carried interest payouts soared ahead of UK tax changes (opens in a new tab), 27th August 2026. ²