3 November 2009

• Purchase of assets from administrators one of the busiest areas of activity

The value of private (i.e. unlisted) UK companies acquired in the year to end July 2009 has plunged by 65% to just £6.8billion, down from £19.5billion in the previous year, reveals research by UHY Hacker Young.

UHY Hacker Young says that the overall M&A market has shrunk dramatically as lenders shunned the funding of M&A deals and concerns over the economy forced ambitious bidders to shelve deal making.

UHY Hacker Young says that the market for private company M&A deals has been more adversely affected than that of large company M&A deals. Recent figures released from the Office for National Statistics reveal that the equivalent drop in value for all M&A deals in the UK including listed companies was 59% over the same period.

Value of UK private M&A deals (1 August – 31 July)

Comments Chris Lowry, Partner at UHY Hacker Young: "M&A transactions can be risky even in the best of times. With so much uncertainty about the shape of the economic recovery, trade buyers have been nervous about stretching themselves either on the financial or the management front."

"A recession throws up so many new urgent issues for a company to grapple with, relegating M&A plans down the list of priorities."

"However, sentiment has begun to shift and cash rich buyers now feel that it is time for a bit of bargain hunting."

"Banks are still unwilling to offer funding to get M&A deals completed, so that will continue to be a major barrier where trade buyers are often too small to tap the capital markets to replace bank lending. There may be very good opportunities around, but if the company can’t find money to fund the deal, the journey pretty much stops there."

"At the same time private equity funds are being told by their banks that they will only fund deals with a much lower level of leverage. Banks are also telling private equity companies that on deals where banking covenants are at threat, they want the PE investors to put in more cash – that restricts their firepower further."

UHY Hacker Young says that as a sign of the times one of the busiest areas of activity for private company deal making is the purchases of assets, business units - and even entire businesses - from administration.

UHY Hacker Young’s research also reveals that the total number of UK private companies that were acquired last year (including those that did not disclose the financial terms of their sale) was 1,453, down 38% from the previous year’s figure of 2,336.

The average value of acquisitions of private UK companies (where terms were disclosed) has fallen from £26.4 million to £25.4million in year to end July 2009.

Chris Lowry