Report shines light on region’s dealmaking activity

Deal activity across the Midlands region so far this year tell a ‘different story in each quarter’, according to latest figures.

The beginning of the year, pre lockdown, saw the Midlands figures largely in line with 2019.

In Q2, volume figures dropped to below half those recorded the previous quarter, while the third quarter saw 135 transactions worth £686m in total – an upturn from the Q2 results, suggesting a gradual return to the M&A activity of previous years.

The overall picture for the year to date is down 35% on the 2019 figures, with a total of 495 transactions so far this year compared to 760 deals in January to September 2019.

The total value of deals in the Midlands so far this year is £3.25bn, down by over 70% on the £11bn worth of deals announced last year.

The decline appears to be most severe in the small market, with deals valued at up to £10m down by almost 50% compared to the same period in 2019. Large and mid-market deals declined by approximately 40% in terms of volume, and there were no mega deals (down from three worth £9.5bn in Q1-Q3 2019).

Private equity deals played an increasingly prominent role in the Midlands market, representing over 17% of all transactions in the region, up from 11% of deals in 2019. Transactions involving companies based in the Midlands made a significant contribution to UK M&A, with an involvement in 13.1% of all deal activity nationally.

While acquisitions are again the most prevalent deal type in the Midlands overall and in the top ten, the first two deals of note are divestments.

The owner of Watches of Switzerland Group has been slowly divesting its stake on the stock exchange, with two transactions, one in January and one in September, which saw a total of 66,000,000 shares sold in two secondary offerings.

Another notable third quarter deal saw Meggitt, the Coventry-based aerospace and defence group, sell its US subsidiary Meggitt Training Systems, supplier of live fire and simulation weapons training systems for defence forces, law enforcement agencies and commercial shooting range owners around the world, to private equity firm Pine Island Capital Partners for a cash consideration of £118m.

Manufacturing remains the most active sector in the Midlands on 123 transactions so far this year, with professional services a close second with 118 transactions. All the industries saw a decline in volume from 2019 and there was only two that experienced an upturn in value, transport and arts and entertainment. Waste management had the lowest decline in volumes dropping from 18 deals to 17 so far in 2020. Infocomms transactions fell by 27%, with 86 transactions worth £238m announced so far this year, down from 118 transactions in 2019 worth £318m.

Funding from private equity firms contributed to 17% of transactions during 2020, overtaking bank debt as the third most popular source of funds in the Midlands. Business Growth Fund was the most active investor with five transactions valued at £12.5m, while Midlands Engine Investment Fund also invested in five deals with a total recorded investment value of £1.05m. Debt funding in the Midlands was again dominated by HSBC, providing funding for a total of 12 transactions worth a total of £16.25m. Maven Debt Finance was the second most active debt provider, supporting ten transactions during the year so far.

Gateley topped the legal adviser table in the Midlands with 43 transactions, just ahead of Harrison Clark Rickerbys with 40 assists.

In terms of value Addleshaw Goddard, with a total value of £567m, beat last year’s top-ranking adviser Ashurst (£290m) to the top position.

The financial advisers were led this time by BDO, which advised on 16 transactions, with Mazars and Grant Thornton both advising on 13 to take second and third position respectively.

Deutsche Bank and Morgan Stanley ranked highest in terms of value, with £591m and £582m worth of deals, respectively.