Despite a challenging economic backdrop, mid-market M&A activity is still on the rise within the UK and Ireland, as confirmed by a report on the first half of 2022 (H1-2022). David Crump, Corporate Finance Director at PKF Smith Cooper, looks at the dealmaking activity during H1-2022 in more detail.

Three people standing by a large widow in a skyscraper.

A recent report published by Dealsuite, the international platform for M&A transactions, has found that dealmaking activity in the mid-market increased during H1-2022. Providing an overview of the UK&I mid-market performance, this article features the key takeaways from the report.

Upward trajectory for transactions

The lifting of Covid restrictions in the early part of 2022 resulted in signs of recovery for the mid-market but this was stunted by other macroeconomic factors, such as the war in Ukraine and rapidly rising inflation, causing widespread uncertainty.

After a steep increase in M&A activity at the end of last year, progress has inevitably slowed but it is still promising to see an increase in transactions during H1-2022.

Transactions by sector

The Business Services sector continues to experience the highest levels of deal-making activity, claiming one in every four mid-market deals made across all sectors.

Meanwhile, it has been a successful six months for the Agriculture & Food sector, which has doubled its share of transactions from 2% to 4% in H1-2022. Other sectors showing promising growth are IT Services & Software Development, Automotive, Transportation & Logistics, Healthcare & Pharmaceuticals, E-commerce & Webshops and Wholesale Trade.

Significant increase in deals over £5m

In H2-2021, 38% of all deals were reported to have a value of £5 million or more; in H1-2022, that percentage has risen to 55%.

Wide-spread increase in assignments for advisors

80% of advisors reported experiencing an increase in assignments during H1-2022, a 6% increase since H2-2021 that reflects the rising demand for buy and sell-side support.

While 4 in 5 advisors are dealing with increased assignment numbers, only 5% of advisors have noticed a decline.

SME prices vary substantially according to sector

One of the most notable findings on EBITDA multiples is that the average price of an SME can vary by more than double depending on the sector.

The average EBITDA multiple for the UK&I M&A mid-market was 5.4x, consistent with the 5.45x reported in H2-2022.

The impact of inflation and interest rates have been felt to varying degrees

With inflation and interest rates at their highest in 20 years, it is inevitable that notes of caution are noted amongst the respondents. However, 64% of advisors reported no reduction in the number of companies for sale.

Currently more demand than supply

The M&A market is currently a seller’s market. On average, a company for sale received interested from 9.2 potential buyers, however this demand does vary according to sector.

The IT Services & Software Development and the Construction & Engineering sectors are experiencing the highest levels of demand with an average company receiving interest from 15.7 and 13.5 potential buyers respectively.

In contrast, companies within the Hospitality & Tourism and Retail Trade sectors are less in demand, although they still attracted on average 4.4 and 4.1 interested parties respectively. Our own experience in the food and beverage industry bucks this trend, with demand for quality businesses in leading international brands remaining extremely high.

A positive outlook for H2-2022

Despite the mixed mid-market performance of H1-2022, it is good to see that 82% of advisors said that they would look back on the six months gone by with satisfaction. Encouragingly, 69% of advisors reported feeling optimistic about the second half of 2022.

How we can help

It is clear that there are still plenty of exciting prospects in the mid-market for both buyers and sellers.

Our highly accredited and award-winning team work closely with clients, formulating bespoke strategies that are both commercially astute and informed by the market but also maximise and highlight the strengths, opportunities, and value-drivers of your business.

If you would like expert advice and support on buying, growing or selling a business, contact us today to speak to our award-winning corporate finance team.