A recent report from Experian has revealed key insights into the current M&A landscape in the Midlands and UK, including “a shift towards smaller and mid-market M&A”. Lauryn Mayson, Corporate Finance Executive at PKF Smith Cooper, summarises the report findings and what they mean for potential buyers and sellers in our latest ‘5 minutes with Corporate Finance’ article.

Experian recently published a report on M&A activity during the first half of 2023 (H1 2023), revealing the latest statistics on dealmaking and dealmakers across the UK and Ireland (UK&I).

After a busy start to the year, PKF Smith Cooper Corporate Finance continues to be one of the most active dealmakers nationwide, ranking 6th in the Midlands and 7th in the UK&I.

If you are looking to invest in new opportunities, grow an existing venture or sell a company, the following insights will give you a flavour of the current appetite for dealmaking in the UK&I. However, the most effective way to secure a profitable transaction is through tailored advice from an M&A specialist. Get in touch to speak to one of our corporate finance experts and find out more.

Key M&A insights from H1 2023

  • Decline in overall deal numbers, as businesses adjust to a rapidly changing market, with a notable shift towards smaller and mid-market M&A
  • Growth in specific industries: mining and quarrying, oil and gas, waste management and water supply
  • Lower deal valuations present profitable opportunities for potential buyers

Overview of current dealmaking landscape

The markedly challenging dealmaking environment experienced in the second half of 2022 persisted into H1 2023 with reduced investment from the private equity houses and overseas corporates due to concerns around the economic landscape.

The total number of transactions (2,863) was 23% lower than H1 2022, a decline reflected globally, after the extended period of elevated M&A activity that followed the Covid-19 pandemic came to an end. This can also be attributed to companies and investors choosing to delay M&A plans in response to the rapidly changing market and an uncertain outlook for the future.

Despite the overall decline, certain industries have bucked the trend and experienced some promising growth in H1 2023:

  • Mining and quarrying (11% increase in deal volume)
  • Oil and gas (Overall transaction value at its highest since 2018)
  • Waste management and water supply (4% increase in deal volume)

The technology sector remains the leading industry for dealmaking, even with a 25% decline in deal volume and 38% decline in total value compared to H1 2022. The sector currently accounts for 27% of all deals made in the UK.

Deals that have taken place have tended to be smaller in value and mainly focused in the small and mid-market. This is due to climbing interest rates escalating the costs of financing higher value transactions and increasing amounts of regulation in the dealmaking environment.

“The shift to small and mid-market deals presents an opportunity if you are a corporate or prospective buyer operating in the SME space, as you may be able to acquire strong businesses at a lower enterprise value than would be typical in a more stable macroeconomic environment.”

Lauryn Mayson, Corporate Finance Executive

Private equity (PE) funded 26% of UK deals in H1 2023. This is equivalent to the market share for PE funded deals in the first half of 2022 but the total value of these deals declined by almost £50 billion (from £67.3bn in H1 2022 to £18.4bn in H1 2023).

Although private equity investment has reduced overall this year, it is worth noting that there has been a 70% increase in public to private takeover bid numbers, reflecting greater interest from investors in UK public companies. This is largely a result of the uncertainty in the global economy, which lead to a decline in public stock market prices and facilitated more attractive takeover prices.

M&A in the Midlands

Deal volume in the Midlands slowed in line with the rest of the UK during H1 2023, experiencing a 26% decline. 76% of all deals were acquisitions.

Despite the regional decline, the pipeline at PKF Smith Cooper Corporate Finance has remained strong. Our team was recognised as the 6th most active financial adviser in the region and we expect this momentum to increase in H2 2023.

An area that has seen significant growth across the Midlands is rights issue transactions, which have increased in number by 66% from last year. Minority stake transactions have also soared in value, rising from £3m last year to £369m.

Management buy-out deals have decreased in number by 27%, however employee buy-out deals have increased by 33%. While the volume of development capital deals in H1 2023 declined by 11% in comparison to H1 2022, the overall value has risen from £174m to £430m. We continue to see a strong appetite to disperse capital from funders and high street banks remain willing to provide bank debt for transactions in this region.

Looking at specific industries, deal activity in both waste management and mining and quarrying has increased (by 22% and 25% respectively), reflecting wider UK trends. M&A in the utilities industry has also risen in the Midlands with a 33% increase.

Manufacturing remains the most active industry for dealmaking in this region, with 101 deals completed in H1 2023, despite this constituting a 36% drop in deal numbers. The second most active industry for M&A was wholesale and retail, with several of the top ten deals belonging to this sector. The total value of deals in the transport sector has also increased from £5m to £29m with this sector remaining relatively stable in the Midlands.

M&A advice from mid-market specialists

The UK&I market has proved its resilience over the past few years. We remain optimistic that deal volume will increase in H2 2023 once businesses have adjusted to market changes.

As the 7th most active adviser in the UK and 6th in the Midlands, our corporate finance experts are at the forefront of dealmaking, with a specialist focus on mid-market transactions. We combine our extensive expertise and market knowledge to help clients navigate the challenges of dealmaking and get the best value from every transaction.

Contact us today to find out more about how we can add value to your future business plans.