UK M&A market bounces back in 2011

May 27, 2011 - PRLog -- The UK M&A market shows signs of rebounding, with deal value in the first three months of 2011 increasing by 63% compared with the equivalent period last year.

The eighth edition of UK Deal Drivers – a comprehensive view of the UK M&A landscape published by PKF in association with mergermarket – reveals that deals worth £23.2bn were completed in Q1 2011.  By contrast, £14.2bn of deals was completed in Q1 2010.

The report concludes that the momentum generated by the strong start to the year, a return to larger deals and increased private equity activity point to this upward trend continuing through the remainder of 2011, despite the challenging funding environment facing many businesses.

The UK Deal Drivers report also found that:

- Larger deals appear to be returning to the market: average deal size in Q1 2011 was around £105m, compared with £66m in the same period last year;

- The number of deals has now exceeded 200 every quarter since Q1 2010; this is in sharp contrast to 2009, when quarterly deal volume peaked at 169;

- Energy and Financial Services were the most active sectors, representing 34% and 16% of aggregate deal value respectively;

- Within the Energy sector, renewable and cleantech are expected to be particularly active segments for M&A in the wake of heightened concerns over nuclear energy following the Fukushima disaster;

- Private equity buyouts and exits have increased in value by almost 38% to £6.2bn in Q1 2011 from £4.5bn in Q1 2010;

- The funding environment continues to be a top concern for UK businesses, particularly in the mid-market.

Hugh Mathew-Jones, a Corporate Finance specialist at PKF, said: “Several months into 2011, it appears that the UK M&A market is finally emerging from its protracted flat period.  Activity in the energy sector has been particularly strong and there is growing interest in cleantech and renewable sources, particularly wind power.  We expect this trend to continue in the wake of the Fukushima disaster and ongoing oil price instability.

“The year so far has also seen a notable spike in private equity activity and we forecast that buyout groups will remain active for the foreseeable future, particularly in the mid-market space. As mid-market businesses continue to grapple with reluctant lenders, opportunities are bound to present themselves to buyers that are willing and able to take advantage.”

Optimism across South West

Laura Shaw from the firm’s South West office believes the market is being quite resilient across the region despite difficulty in accessing finance from traditional lenders.

This resilience has been helped by an increase in interest from private equity firms which are providing access to development capital. The market has also been helped by the fact that businesses across the South West are looking at how they can grow and move forward in 2012.

Laura said: “Private equity is definitely coming to the forefront and will continue to do so. There is more financing available from at the £2 million to £5 million level which is typically the size of equity investment businesses in the South West are looking for.

“I anticipate private equity firms with cheques of £2 million upwards will see quite a lot of business from the South West in the medium to long term.

“We are also seeing vendors supporting a real return from management buyouts backed by private equity, where the vendor is being more realistic on price and private equity buyers are looking for solid management teams they want to support.”

In terms of the next six months Shaw is expecting an improvement in the merger and acquisition market. With businesses having made the necessary cost savings because of the recession people are looking at how to grow with a real interest in achieving this through acquisition.

Laura added: “On the sell side I think there will be a handful of sales to trade buyers with a continuing uptick in private equity backed management buyouts as owners seek to realise some of their investment from their business.

“Overall I think the market is looking a lot more positive and a number of good deals are likely to happen over the next six to 12 months across the region.”