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In the current uncertain and volatile market, dealmakers are turning their attention to middle-market companies in the UK. The lower prices of these companies make the transactions more appealing and manageable.
Conversely, significant transactions within the country have slowed down due to persistent domestic inflation, rising interest rates, and stricter antitrust regulations.
This shift towards smaller deals is a result of the macroeconomic and regulatory uncertainties that are impacting company and investor strategies. Additionally, London’s smaller listed companies are facing challenges due to the lack of initial public offerings and investment opportunities.
“The focus is on the de-equitization of the UK market in the £500mn to £5bn mid-market range because these are excellent companies that are unfortunately undervalued,” explained Philip Noblet, Jefferies’ Head of UK Investment Banking.
According to data from the London Stock Exchange Group, mergers and acquisitions involving UK companies as buyers or sellers have decreased by 50% compared to last year. The decline is particularly pronounced in transactions valued above $2bn, which have experienced a 48% drop.
Only one “mega-deal,” surpassing $5bn, has occurred in the UK this year, compared to four during the first half of 2022. The Swedish private equity group EQT’s acquisition of veterinary pharmaceuticals company Dechra stands as the sole significant transaction.
One senior UK banker noted, “We are seeing a slowdown in large-scale deals. It’s not that we purposely shifted our focus to smaller deals, but that’s where the opportunities lie.”
Companies and private equity groups are now prioritizing manageable transactions. For instance, Lookers, one of the remaining listed car dealership groups in the UK, recently agreed to a £465mn acquisition by Canada’s Alpha Auto.
Another UK M&A banker emphasized, “We are looking for strategic, low-risk, and bolt-on deals that align with our goals.”
According to data from Peel Hunt, 85% of takeover offers for UK listed companies, totaling 23 deals, had an equity value of less than £500mn. This represents the highest ratio since the start of 2020 and a significant increase from the previous year when approximately 55% of takeovers fell within this range.
While global M&A activity is down this year worldwide, the UK faces unique challenges, including persistent inflation and its impact on consumers and the real estate market.
“All these macroeconomic influences make the UK appear relatively inexpensive,” highlighted Michael Nicholson, Peel Hunt’s Head of M&A. “There are still many high-quality smaller UK companies struggling to comprehend the benefits of being listed.”
In order to mitigate exposure to volatile markets, dealmakers have employed strategies such as corporate spin-offs or non-cash transactions, as seen in the Vodafone and Three telecommunications merger in the UK.Follow Google News
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