Tough times continue for dealmakers in the UK as deal volumes and valuations keep heading south, according to BDO Stoy Hayward’s Private Company Price Index (PCPI).

Tough times continue for dealmakers in the UK as deal volumes and valuations keep heading south, according to BDO Stoy Hayward’s Private Company Price Index (PCPI).

The latest findings reveal that there were 493 private UK mid-market company sales during the first quarter of the year, a slight adjustment on the 494 deals completed during the previous quarter. Although the figures are almost identical, this latest figure marks a ten-year low in M&A activity, according to the professional services firm.

The index confirms that the majority of dealmaking that took place between January and March this year were strategic rather than financial transactions involving private equity players. There were 402 strategic transactions of this nature, an 11 per cent drop on the previous quarter. In sharp contrast, there were 91 private equity-backed deals, a dip of just one per cent compared with the same period in 2008.

The findings of the Index also reveal that company prices had fallen further, with trade buyers paying on average 12 per cent less for private equity portfolio companies. The index recorded that company values were based on a price of 10.1 times their historic after-tax profits, down from 11.5 times seen in the final quarter of 2008.
 
Despite falls in both deal volumes and privately owned company prices, the M&A community is beginning to pick up on a conveyed message from a number of lending institutions that they are now open for business, says Christopher Clark, corporate finance partner at BDO Stoy Hayward.

Added Clark: “It will take some time for the appetite of banks to fund leveraged transactions, to fully feed through to the execution of deals in the pipeline. Given the higher capital cost of funding transactions from equity however, it is not surprising that deal pricing is down.”