Midlands deal values drop to lowest figure in a decade

There have been “few positives” to take from the M&A figures for the region in 2020, according to a report out today which shines a light on dealmaking activity across the Midlands.

Transaction numbers dropped to 825 (from 989 in 2019), a fall of 17% – the smallest number recorded since 2014.

Meanwhile, deal values saw a 57% decrease to £6.6bn (falling from £15.3bn the previous year) – this being the lowest value over the last decade.

The effect of the Covid-19 global pandemic is obviously a huge factor but the report says that many other regions appear to have reached parity in terms of deal value year on year and in some cases have reported a significant positive spike.

The overall decline appears to be most severe in the small deals market, while one bright note saw large deals increase by 23% in terms of volume, with this correlating to transaction values rising to £3.8bn (from £3bn).

Midlands-based companies were involved in 14% of all UK deals in 2020, making the region still the busiest outside of London and the South East, and contributed 1.9% to their total value.

The year’s biggest deal in the region saw American videogame company Electronic Arts reach an agreement to acquire Codemasters Group Holdings, the Warwickshire-based developer and publisher of video games.

Under the terms of the transaction, shareholders of Codemasters will receive 604p in cash per share valuing the entire issued and to be issued share capital at approximately £945m.

The offer from Electronic Arts was considered superior to an offer from US rival Take-Two Interactive Software.

The next most notable transaction involved Aston Martin Lagonda Global Holdings, the independent luxury car manufacturer based in Warwick, raising £536m through an equity issue, including a private placement of shares.

The net proceeds from the placing and rights issue will be used to improve liquidity and finance the ramp up in production of DBX and the turnaround of the company’s performance.

Manufacturing remains the most active sector in the Midlands on 223 transactions in 2020, some way ahead of wholesale and retail with 189 and professional services a close third on 183 transactions.

Nearly all the industries saw a decline in volume from 2019 and there was only two that experienced an upturn; waste management (with a 4% increase) and mining and quarrying (an 80% rise). In respect of transaction values, there were only seven of the 19 sectors which reported an increase; the most notable of these being infocomms (where deals worth £1.7bn were recorded), transport (£382m), mining and quarrying (£213m) and public administration and defence (£132m) reporting triple digit growth or more.

Where detailed funding arrangements were disclosed, the report recorded 88 acquisitive transactions that were funded from newly agreed bank debt, down from 155 in 201.

HSBC remains the primary lender in the M&A market, funding 17 deals in all.

Private equity is playing a proportionately higher role in the market, funding 16% of all transactions, up from 12% in 2019 (134 deals in 2020, from 122 the previous year).

Business Growth Fund was most active, completing ten deals, with Midlands Engine Investment Fund (on seven transactions) close behind.

Advisers Gateley topped the legal adviser table in the Midlands with 75 transactions, ahead of Harrison Clark Rickerbys with 49 assists.

In terms of value, Gowling WLG (advising Codemasters amongst others) worked on deals with a total value of £965m, beating Addleshaw Goddard (£668m) to the top position.

The financial advisers were led this time by KBS Corporate, which advised on 37 transactions, with BDO (30) and Hazlewoods (26) in second and third positions, respectively.

Liberum Capital (four deals) ranked highest in terms of deal values for an aggregate consideration of just over £1bn – they too assisted Codemasters in the biggest deal of the year.

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