16 January 2012

Publications that covered this article include City AM, M&A News and The Times, 16 January 2011.

• Total value of deals now half of peak levels
• Private equity firms behind many of the largest deals

A rally in M&A activity targeting UK private companies has ground to a halt over the last 12 months, our research has found.

The value of mergers and acquisitions targeting private (unlisted) UK companies has declined by 4% to £12.1 billion (year ending July 2011), down from £12.6 billion in the previous 12 months. ^[1]  M&A deals targeting UK private companies are now worth half of their recent peak in 2006/07 of £24 billion. (See chart below)

Our research says that nascent recovery in unlisted company M&A deals that took place in 2009-10 was knocked off course first by concerns over the impact of the UK’s Government’s austerity programme and then by the explosion of the Eurozone crisis.

Chris Lowry, Partner at our London office comments: “We are seeing no shortage of business owners looking to exit but potential buyers are sitting on their hands.”

“Buyers are either nervous about buying a company whose business might deteriorate as the economy stagnates or they think that if they wait longer prices might fall further.”

“Until the Eurozone crisis is dealt with it is only going to be the braver buyers who complete transactions.”

“Prices for many businesses are at bargain basement levels, especially at the smaller end of the market. We’re now seeing companies going at price to earnings multiples that are 20%-25% lower than two to three years ago. However, it is one of the ironies of the M&A market that it is just when prices are near rock bottom that buyers are most nervous about completing deals.”

Our research says that even where there is a will to make an acquisition, bank lending to private company M&A deals is still difficult to obtain, posing as a major barrier to M&A deals.

Chris explains: “Banks are only willing to lend modest amounts so a lot of deals are having to be funded through the use of invoice finance or by the seller accepting payment over a longer period of time.”

However, our research found one bright spot in the M&A market for private UK companies, which was the level of activity amongst private equity buyers.

Chris says: “Our research found that many of the largest M&A deals of UK private companies last year involved private equity bidders.”

“Whilst the perception is that the private equity market is suffering the reality is that they are active relative to trade buyers.”

“This may be because private equity firms have funds that need to be invested or it may be that they are just more motivated to buy when they see prices are cheap.”

“It’s the job of private equity funds to buy when they see a bargain – there isn’t the same pressure on trade buyers to act.”

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

^[1] Excludes AIM and PLUS Stock Exchange listed companies

Chris Lowry