The M&A mid market is cooling down yet remains resilient

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London, August 30, 2022 - Despite all the uncertainty in the market due to the rising interest rates, inflation, and the war in Ukraine, the EBITDA multiple for the United Kingdom and Ireland only slightly decreased. The market remains a ‘sellers-market’ where demand is bigger than supply.

These are the most important findings of the UK&I M&A monitor, the periodic survey of M&A platform Dealsuite into data and trends for the M&A market in the United Kingdom and Ireland. The research was conducted among 327 M&A advisory firms that focus on companies with a revenue between 1 and 200 million euros.

High inflation and rising interest rates

As the ECB increased the interest rates for the first time in 11 years to suppress the strong inflation, the availability of financing and the selling prices were expected to be impacted by this. 56% of advisors reported that the rising interest rates affect the availability of financing.

Seller's market

Dealsuite asked advisors to express the number of interested parties per offered firm. The results showcase that the current M&A market remains a seller's market. The amount of interested parties is in general higher than the number of companies for sale. On average, there are 9.2 interested parties lined up per company for sale. This puts a seller in a luxurious position.

Increase in deal size

A significant increase in the average deal size was reported by advisors. In the first half of 2022, an increase from 22% to 36% was reported in the number of transactions with a deal size of over 10m. At the same time the share of deals under 2.5m decreased from 47% to 32%.

Cross-border deals

The comparison of average EBITDA multiples per region highlighted the significant differences in prices paid for similar companies. One of the most noteworthy differences in average paid EBITDA per sector is in the Healthcare & Pharmaceuticals sector in UK&I compared to the other western-European countries. For example in the Netherlands, where 6.35 times the EBITDA was paid for a similar company. In UK&I, the EBITDA multiple for this sector is 8.4. This means that it can be interesting to acquire companies abroad for relatively cheaper prices. With digitalisation, it has now also become easier to conduct cross-border deals. 41.1% of the advisors report that over the past 5 years, the number of cross-border deals has increased.

Average EBITDA multiple only slightly decreases despite uncertainty in market

With all of the uncertainties in the market, it is surprising to see that the average EBITDA multiple only slightly decreased by 0.05 from 4.45 to 4.4. According to Floyd Plettenberg, CEO at Dealsuite, this can be explained by the fact that the M&A market is a seller's market. ‘The M&A market can be compared to the housing market. There is more demand than supply, which allows the selling party to uphold the prices.’ So despite the impact of the war, inflation, and rising interest rates, the prices paid for an SME remain similar due to the high demand.

Outlook

The outlook for the UK&I M&A market in the second half of 2022 is still promising. Although 31% of advisors expect the market to deteriorate, a percentage of 69% of advisors expect the market to still improve. The majority of advisors is optimistic about the months to come.

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