- Mergers and Acquisitions and ‘take private’ deals collapse
- But premiums see a year-on-year jump
- More companies putting themselves up for sale
Takeover activity in the UK suffered a sharp slowdown in the second half of 2022, despite a strong start to the year, as investor and boardroom sentiment collapsed amid falling consumer confidence and soaring inflation.
The mid-cap domestically focused FTSE 250 index dropped 20% while the FTSE 100 showed more resilience, eking out a small gain, reflecting its more defensive composition and prevalence of energy and commodity companies and a weaker pound.
TAKEOVER PREMIUMS RISE
Weaker mid-cap prices enticed bidders to offer a higher premium with the average increasing to 61% compared with 45% in 2021 according to a new piece of research conducted by broker Peel Hunt.
The number of ‘firm offers’ dropped by 22% in terms of volume while by value the number of deals dropped by almost a third. During the second half just two FTSE 250 companies were under a firm offer compared with more than six during each of the prior three half years.
While ‘take private’ deals dominated in the first half of 2022 they virtually disappeared in the latter part of the year.
Meanwhile tougher economic conditions led to more companies putting up the ‘for sale’ sign with 15 formal sales processes announced during the year.
WHAT DOES THE FUTURE HOLD?
Peel Hunt anticipates the UK market will continue to see interest from private equity and strategic buyers driven by its relative cheapness and the tailwind of a weaker pound.
The rising cost of debt finance and higher operating costs at mid and smaller cap companies underscores the importance of scale and hints at further consolidation.
Over 2023 Peel Hunt expects merger and acquisition deals to be driven by defensive considerations such as achieving greater scale or securing supply through vertical integration.
The broker sees less speculative activity often employed to drive geographical expansion or add new products.
Private equity is expected to remain a key player but stability in the debt financing markets, and equity markets is required before the ‘dry powder’ built up by private equity over the last decade can be put to work.
Michael Nicholson, head of mergers and acquisitions at Peel Hunt, said that ‘with no lack of equity capital, the reopening of the debt markets will surely trigger take private activity.’
