Home Business News Last year the total mid-market deal value fell from £14.4 billion to £11.4 billion

Last year the total mid-market deal value fell from £14.4 billion to £11.4 billion

by Thea Coates Finance Reporter
15th Feb 24 7:14 am

In-depth research from law firm Trowers & Hamlins has highlighted significantly subdued mid-market deal activity in 2023, with the number of deals down 33% compared to 2022, with a total value of only £11.4bn, down from £14.4bn the previous year.

182 deals were recorded, with private equity funds involved in 38 of them. The average deal size was £34.5m.

Trowers’ report, ‘Monitoring Mid-Market M&A: 2023′, compiled with data from CapitalIQ, the research division of S&P Global, highlights the pressures facing deal makers in 2023, with economic and political uncertainty continuing into 2024, although there are hopes of an uptick in activity, funded by sponsors

cash piles and an opening of the leverage debt markets, but with increased scrutiny on companies’ accounts and limitations on claims.

The analysis focused on deals involving UK company targets valued between £10 million and £250 million, across six key economic sectors; Leisure (Food & Drink), Recruitment, Manufacturing, Technology & Telecoms, Pharmaceuticals and Healthcare.

Technology and telecoms  stands out as the most active part of the mid-market, accounting for more than a third of total deal volume. Cumulative deal value for mid-market UK technology and telecoms transactions increased from £2.8 billion in 2022 to £3.6 billion in 2023, across 58 recorded deals.

The Hospitality, leisure, food and drink sector also shone, with mid-market deal values up from £1.7 billion to £2.5 billion year-on-year, driven in large part by the steady return of tourists to the UK following the pandemic, which in turn fuelled a flow of inbound investment.

The sector saw 41 deals recorded over the period, compared to 35 the previous year.

The UK manufacturing sector also saw an increase in mid-market deal value from £930 million in 2023 to £1.5 billion last year alongside a rise in deal volumes from 20 in 2022 to 28 last year. Notably, environmentally positive deals featured strongly, for example in the recycling sector.

Tim Nye, Partner and Head of Corporate at Trowers & Hamlins, said, “Last year was undoubtedly a difficult year for the UK’s mid-market businesses.

“What was generally a seller-friendly market until 2023 softened, resulting in a shift towards deal terms more balanced between buyers and sellers. A key example is buyers tending to prefer the deeper dive of completion accounts over locked box.

“The greater scrutiny in due diligence has been matched by a greater focus on warranties and indemnities and a shift of the dial in favour of buyers when it comes to limitations on claims.

“M&A transactions have been negatively impacted by stubborn high inflation, rising interest rates and difficult debt markets.

“Whilst many businesses have managed to succeed despite the headwinds, it is also true that some of the deals completed will have involved distressed sellers exiting while they were still in a position to extract value.

“The year ahead will not be easy, but the leveraged buyout market should show signs of recovery as debt becomes easier to price with interest rates appearing to stabilise, and we expect mid-market M&A to steadily pick up across the board.”

Looking forward

The Trowers report highlights that, whilst dealmakers remain cautious about mega deals in the face of macroeconomic and geopolitical uncertainty, the mid-market may be the engine of an uptick in transactions in 2024.

The report highlights key drivers of deal volume for 2024 including more certainty around interest rates, buyer and seller valuation expectations narrowing, distressed sellers struggling to refinance and bringing assets to market and an ongoing and increasing focus on ESG and sustainability along with opportunities borne from technological transformation.

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