Uncertainty around the UK general election and concerns about potential changes to Capital Gains Tax (CGT) were shrugged off by the mergers and acquisitions market in the first half of 2015, according to the latest PCPI/PEPI analysis from BDO.
The second quarter of 2015 saw a total of 509 deals completed, a slight increase from last quarter’s 499 deals, making the first half of the year the most active since 2012 with a total of 1,008 deals.
M&A dealmakers have shown little concern for the ‘Grexit’ risks and the stronger economy is supporting renewed confidence. Furthermore the continuation of Entrepreneurs’ Relief, which allows SME owners selling their businesses to pay tax at 10 per cent on the first £10m of gains as opposed to 28 per cent (CGT rate), is also likely to encourage M&A activity in the latter half of the year.
As well as an increase in activity, the index also found that companies are paying more for good quality businesses on the market with trade multiples edging up to 10.0x from 9.2x in the period and private equity multiples remaining high and constant at 10.8x (from 10.9x). Both are slightly higher than the average post-recession multiples for trade (9.4x) and private equity (10.0x), which reflects the increased appetite and competition from buyers in a growing economy.
Roger Buckley, M&A Partner at BDO, says: “Although there were concerns on the lead up to the election, many private equity and trade buyers continued to do deals regardless. The UK’s newly elected one party Government and strong macroeconomic performance brings with it more stable market conditions and we expect to see this translate into a boost for the M&A market. All the ingredients are there to make 2015 the strongest year for post-recession deal making.
“The trade price increase reflects a trend of increased pricing due to competitive pressures from other trade buyers and private equity. Unsurprisingly private equity continues to pay a premium for quality assets as the auction processes remains competitive, debt markets are strong and there is a keen desire to invest at this stage of the economic cycle.”
