The value of private M&A in the UK declined by 4 per cent to £12.1 billion for the year ending July 2011, research shows.
The value of private M&A in the UK declined by 4 per cent to £12.1 billion for the year ending July 2011, research shows.
Statistics from London-based accountancy firm UHY Hacker Young show that deals targeting UK private companies are now worth half of the recent peak recorded during 2006/07, when it accounted for £24 billion.
The report attributes the fall off in private M&A to both concerns over the impact of the government’s austerity programme, and the Eurozone crisis.
Figures from 2009/10 showed a rebound from 2008/09 when only £6.8 billion was attributed to UK private M&A deals.
Chris Lowry, partner at UHY Hacker Young, explains: ‘We are seeing no shortage of business owners looking to exit but potential buyers are sitting on their hands.
‘Buyers are either nervous about buying a company whose business might deteriorate as the economy stagnates or they think that if they wait longer prices might fall further.’
Lowry adds that until the Eurozone crisis is resolved it is only the ‘braver buyers’ in the market who will complete transactions.
Findings from the report show that companies, especially at the smaller end of the market, are being sold at ‘basement levels’ for price to earnings multiples that are 20-25 per cent lower than two or three years ago.
‘However, it is one of the ironies of the M&A market that it is just when prices are near rock bottom that buyers are most nervous about completing deals,’ Lowry adds.
Bank lending is an issue that the report highlights as a ‘major barrier’ to private company M&A deals.
Lowry comments: ‘Banks are only willing to lend modest amounts so a lot of deals are having to be funded through the use of invoice finance or by the seller accepting payment over a long period of time.’
The research also finds many of the largest M&A deals of UK private companies involved private equity bidders.
’Whilst the perception is that the private equity market is suffering the reality is that they are active relative to trade buyers,’ Lowry explains.
‘It’s the job of private equity funds to buy when they see a bargain – there isn’t the same pressure on trade buyers to act.’
