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Sector Analysis

UK M&A market slower but still active

By CreditMan Thursday, September 11, 2008

UK M&A activity in the first half of 2008 continued at a slower pace compared to the period running up to the onset of the credit crunch, but has by no means disappeared, according to a new study conducted for PKF Accountants & business advisers.

The PKF report, Deal Drivers UK, produced in association with mergermarket, shows that activity rallied in Q1 2008 with 363 transactions. The second quarter was slower with only 305 transactions, but over the whole of H1 2008 the 668 transactions accounted for around 26% of Europe’s overall deal value and volume showing the UK continues to lead its Western European counterparts.

The mid-market followed a similar pattern with a stronger first quarter. There were 231 deals in Q1 and 184 deals in Q2. The revision to the Capital Gains Tax rules was one of the main reasons behind this as many SME business owners speeded up their sales processes to meet the April deadline.

The influence of private equity funds was a big overall driver in the mid market. There were 164 buyouts in the first half of 2008 worth £14.3bn. This is down on last year’s figures, but private equity funds still remain active participants in M&A activity across most sectors in the UK.

Hugh Mathew-Jones, Head of Corporate Finance at PKF commented: “Deal making in both the large cap and mid market has definitely slowed compared with the heady heights of last year’s M&A boom, but the market remains active albeit increasingly challenging.

“There is no doubt that we have entered a buyers’ market, but I am optimistic that bidder and vendor expectations will adjust to revised valuations post credit-crunch resulting in a pick up in deal flow in the final quarter of this year and early in 2009.”

The picture of deal flow across specific sectors was similar to the overall picture in H1 2008. In real estate, although deal value was down 13% on H2 2007, deal volume was up 44%. Put this in to context with a declining market since a record breaking final quarter of activity in 2006, and although the market is slower, it is not completely static.

M&A activity in the UK food sector looked strong in H1 2008 with 24 transactions worth a combined £597m. This was largely down to the £350m purchase of Grampian Foods by Vion Group however and M&A activity in the mid-market was generally more subdued with a decline in both value and volume of deal flow. Transactions are still taking place however and with consolidation expected in the dairy sector, the remainder of the year should see continued steady deal flow.

PKF commissioned mergermarket to explore the health of UK M&A across five key industry sectors – hotels & leisure, business services, food, real estate and manufacturing. mergermarket also interviewed PKF’s leading Corporate Finance partners across the UK’s six main regions – South East, South West & Wales, Midlands, East Anglia, North and Scotland for their views on regional activity. The third edition of Deal Drivers UK looks at deal volumes and values in the UK in the first six months of 2008.

Copies of the 30 page Deal Drivers UK report can be downloaded from www.pkf.co.uk/dealdrivers