An inside-out study of UK mid-market M&A
Worldwide private equity funds accounted for c.40% of total M&A deal volume, while in the UK almost 50% of public M&A deals involved private equity– either as the principal bidder or backer.
As part of NumisFocus: An inside-out study of UK mid-market M&A, we surveyed both institutional investors and FTSE 250 directors. For investors, we discovered that 89% regard the increasing levels of private equity activity to be ‘positive’ or ‘very positive’.
We expect another active year for deals and for private equity to continue to play a major role. The Russian invasion of Ukraine (launched after our survey was completed) may cause some bidders, vendors and financing providers to pause amidst the current uncertainty.
The crackdown on Russian oil imports and the sharp rise in prices are likely to have significant inflationary effects on certain sectors, notably manufacturing. However, disruption will also create opportunities for some buyers and share price falls at listed companies may be a lure that private equity bidders find hard to resist. Ongoing public bid situations for the Ted Baker, Ideagen, RWS and Homeserve have already shown private equity appetite and activity remains.
Nearly one in five (18%) of FTSE 250 directors that we surveyed said that even before the Ukraine crisis, they felt their business was highly vulnerable to a bid, with 61% saying they were ‘somewhat vulnerable’. This sense of vulnerability is likely to have increased given recent share price declines.
As well as market prices becoming more attractive in recent weeks, other fundamental drivers remain in place, including historically low borrowing costs and favourable exchange rates.
“Increasing M&A activity from private equity funds was a significant driver of the overall rise in deal-making last year and has been welcomed by institutional investors. Private equity brings an extra dimension to the public and private M&A markets – fresh eyes, different investment horizons and their own techniques for value realisation.”
“Both corporates and private equity have been re-evaluating their business portfolios and M&A strategies in the wake of the pandemic. The war in Ukraine has now delivered a new and significant uncertainty, as well as anticipated inflationary pressures and less predictable financing markets.”
“A further deterrent for private equity firms to act in some UK public situations would be the likelihood of a credible corporate counterbidder emerging to compete against them. Indeed, our survey respondents expect to see good levels of activity from corporate acquirers – both from the UK and overseas - who are on the front foot with their own acquisitive strategy.”
“Despite this, private equity players are identifying attractive public and private opportunities and remain replete with funds to deploy and retain good access to relatively cheap capital. We therefore anticipate that UK public and private M&A markets will remain active throughout 2022 and for private equity funds to continue to play a key role in UK M&A activity.”
1 Pitchbook Global M&A Report, 26 January 2022
2 M&A Insight
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