PE Tech Report


Like this article?

Sign up to our free newsletter

UK M&A still going strong despite election fears but storm clouds loom, says BDO

Merger and acquisition activity has held up in the UK during the first quarter of 2015 despite the uncertainty created by the election, according to the latest PCPI/PEPI Index from BDO Corporate Finance.

The index, which tracks the multiples paid by trade and private equity buyers for private companies found that private equity buyers are paying more than the previous quarter – 10.9x up from 9.5x while trade buyers are paying less – 9.2x down from 11.7x. The disparity between multiples is explained by the relative growth profiles and size of transaction during the quarter – private equity tended to buy higher growth and larger companies than their trade counterparts.

The number of deals remained high with nearly 500 deals completed, slightly down on the previous quarters’ 559 deals but in line with last year’s average and without an obvious pre-election ‘dash for cash’.

Yet despite the high deal flow, many owners see clouds on the horizon. Private business owners who have thus far been prepared to sell their businesses are becoming increasingly concerned about potential changes to Capital Gains Tax rates post-election that may impact the market.

Roger Buckley, Partner at BDO, says: “Private business owners are the lifeblood of the M&A market and this year there has been a confluence of factors to make this an attractive time for them to sell. Many private equity firms are awash with cash that needs to find a home and there is plenty of debt available to fund deals especially with the rise of institutional debt funds. Meanwhile trade buyers have been more willing to look at a deal as a way to expand rather than rely on organic growth. All this has added up to a competitive market for quality businesses.

“However, what goes up can easily come down and many think the market is fragile. Tax is one of the key areas of debate for this election and, dependent on the outcome, an increase in CGT could very well put business owners off entering into M&A activity. Without this important source of deals for M&A, volumes could well see a marked downturn throughout the rest of the year and beyond.

Like this article? Sign up to our free newsletter