Resurgent manufacturing sector drives surge in private company deals

The highest economic growth experienced in the UK economy since 2007, combined with rising deal volumes in Q4 2013, have seen multiples paid by private companies surge 30 per cent year on year, according to BDO’s latest Private Company Price Index/Private Equity Price Index (PCPI/PEPI).

While Q4 2013 has been a particularly strong quarter, BDO are confident that activity in the M&A market will continue this strong rise in 2014.
The manufacturing sector is driving the growth in private deals with deals such as Senior Plc’s acquisition of aerospace components manufacturer Thermal Engineering Holding in December 2013, attracting a multiple of 16.4×. Cross-border M&A is also becoming an increasing feature of the index with overseas buyers attracted to the relative stability that the UK economy offers, with the US and Japan showing particular interest in UK businesses.  
BDO’s index compares the average EV/EBITDA multiples being paid on the sale of private companies to trade buyers (PCPI) and private equity buyers (PEPI). In Q4 2013 it was found that private companies received multiples of 12.1, up from 11.2in Q3 and 9.1 on the same quarter last year. Private equity multiples, in contrast, slipped slightly to 9.1 from 9.8 last quarter.    
Total deal volumes increased by 13.4 per cent on the third quarter and by 5.4 per cent year-on-year. Trade deals once again lead the rise in volumes, increasing 15.1 per cent, to 466 deals (Q3: 405).  Although not as impressive as the trade volumes, private equity deal volumes still rose by 6.4 per cent to 84 (Q3: 79) and 9.1 per cent year-on year.  BDO believe that private equity deals will start to increase as the economy continues to improve and pressure builds on PE houses to invest. 
Tim Clarke, partner, corporate finance at BDO, says: “The rise in trade prices paid versus the slight decline in the PEPI raises the question of who played the smarter game last year?  The surge in trade deals, especially in the manufacturing sector, can be partly attributed to a willingness to gain additional strategic and synergistic benefits, whilst PE buyers tend to be cannier with their approach to pricing, having to look at businesses on a standalone basis.  The IPO resurgence has also played its part, providing an alternative exit route for PE backed businesses.
“In addition, the relative strength of the UK economy makes it a highly attractive growth market by overseas investors, with a high volume of interest coming from countries such as the US and Japan. With economic indicators remaining positive we expect growth in the M&A market to continue into 2014, bolstered by a pick-up in private equity activity.”

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