Deals market cools – KPMG report

Christian Mayo

Advisers are talking up the threat from higher capital gains rates to stimulate interest in selling up at a good rate.

Rick Stark, head of private equity at KPMG said: “We may also see a boost in mid-market transaction levels as questions regarding the capital gains tax regime loom. Similar uncertainty over the last few years has weighed on private business owners, and owners who are mindful of noise around potential increases in CGT rates may be tempted to push the button and get a deal done sooner rather than later.”

Stark also said threat of a recession is receding and that desire for growth and investment through merger activity is on the corporate agenda.

“There’s more money than there are deals on the table. Demand for lower-risk opportunities, such as bolt-ons and minority deals, and for businesses in robust sectors, will continue. It may be a tough road ahead for the country and for businesses, but those who can weather the storm by remaining agile, focused and as prepared as possible, will emerge well-placed to take advantage of future opportunities.”

He was speaking as KPMG’s latest study of UK transactions involving mid-market Private Equity investors showed a cooling in the Northern deals market in 2022.

Over the course of the year 149 deals were completed, worth £9.3bn, reflecting a year-on-year decrease of 19.9 percent and 7.9 percent, respectively – according to new analysis from KPMG UK.

The picture for the overall UK Private Equity Mid-Market was similar, with the total value of deals down 12 percent to £46bn in 2022, and volumes down by 19 percent to 680.

However, despite the challenging conditions, the North of England retained its market share completing just over a fifth (22 per cent) of all transactions in the UK market. The North West remains the greatest driver for volume and value of deals in the North.

From a sector perspective across the UK, Business Services and Technology, Media and Telecommunications (TMT) took the top spots for M&A activity as they have done consistently for the last few years. Together they accounted for almost two thirds (63 percent) of all mid-market Private Equity deals in 2022.

Christian Mayo, head of corporate finance in the North at KPMG, said: “The private equity mid-market saw a record year of activity in 2021 so it isn’t that surprising that deal volumes and values have cooled a little as the market normalises. Many across the Northern market saw buoyant activity at the start of last year but strong economic and geopolitical headwinds pumped the brakes a little on that momentum.

“Investors and business leaders have been monitoring closely how those conditions unfold and what the impact of high inflation, interest rates and the wider cost-of-living crisis might be. Such uncertainty breeds caution and inevitably put some mandates on ice.”

The North West accounted for just over a tenth (11.2 per cent) of the UK private equity mid-market making it the active market outside of London. The region saw 76 transactions in 2022, down nearly a quarter (23.2 per cent) from 99 in 2021. While the region also retained its position as the most valuable market outside of London combined deal values also fell from £5.4bn to 4.8bn. Compared to pre-pandemic levels, the North West’s mid-market activity volume and values were both up seven per cent.

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