Smaller deals market is the silver lining of wider slowdown

Experian deals data highlights trends

A small number of very large North West deals have distorted the annual release of Experian’s deals data, but confirming what every funder and advisor in the North West market is feeling – deals are down.

Values may have increased by 100% year on year to a total of £15.4bn, but this was against a backdrop of declining volume of transactions, with the total value dominated by a small number of large transactions, these include: EG Group offloading their petrol stations; Dechra’s take private acquisition by private equity; JD Sports selling a batch of several brands to rival retailer Frasers; CorpAcq’s deal with a New York special purpose vehicle; and the continued prolific activity of Cheshire-based RSK Group.

The deal hungry environmental consultancy services group has made 25 acquisitions in both the UK and internationally.

This flurry in high value deals is a positive takeaway from what is otherwise a much more reserved year so far in the M&A market. 

Deal volume has declined by 24% from last year to a total of 574 so far this year. This is one of the lowest results seen for the region in the last ten years, notwithstanding the 2020 figures which were heavily impacted by the global pandemic. 

Investment wise there has been a decline of around 20% for both bank debt and private equity funded transactions compared to last year’s figures, potentially as a result of the drop in investor buy-outs and development capital deals. 

The most active investor in the region is Mercia Asset Management with a total of seven transactions worth £16.5m. In terms of value, Foresight Group has invested the highest amount of capital in the North West with £22m. 

Despite there being less activity overall, the busiest debt provider for the region is Thincats, investing in seven transactions, followed by Shawbrook Bank with four recorded deals. 

Ten years ago, there were 473 deals recorded over the same period, with volumes dipping to 462 in 2014. The latest figures are a marked change in what was a positive trajectory for the North West market. 

Value analysis shows a decline for all size brackets, except for mega deals, which increased from zero last year to four this year. Reverse takeovers appear to be making a resurgence in 2023 with three such deals announced so far compared to none in 2022 or 2021 and only one in 2020. 

Acquisitions proved to be the most popular deal type with almost 70% of all transactions. As expected, these volumes have fallen in line with the overall total number of deals with a decline of over 26% to 399 deals valued at £6.8bn so far in 2023. Whilst investor buy-outs have declined since YTD 2022, secondary buy-outs are on the rise, with five recorded so far this year. 

The value of investor buy-outs is the second highest despite the lower volume numbers with a total of £4.6bn. There was a North West element in approximately 12.78% of all UK transactions by volume so far this year, while North West firms contributed around 11.39% of total deal value.

Nationally the slowdown has persisted and Jane Turner Research Manager, Experian MarketIQ said: “The slowdown in UK and Irish M&A that took hold in the second half of 2022 has persisted deep into 2023, as companies adjust to headwinds driven by inflation and escalating interest rates inflate the cost of financing deals. However, a silver lining has emerged in the form of a resilient small deals market, and we’ve seen both corporate and private equity buyers still prove keen to deploy mounting cash reserves in this area. 

“Meanwhile, ARM’s multi-billion New York flotation was among the largest ever launched by a UK business, and while the UK IPO market remains subdued, a recent uptick in the US raises hopes that a domestic recovery could follow next year. With M&A activity remaining a strategic priority for businesses, and the need for technological transformation still high on the agenda, the final quarter could see a welcome acceleration of deal volume. As conditions stabilise, the resilience and adaptability the market has demonstrated in recent years bodes well for a return to growth in Q4.” 

In the league table of deals completed in the North West, K3 Capital (which owns a business brokerage) topped the league on volume, followed by Grant Thornton, RSM, BDO and Azets.

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