Understanding the UK M&A Market: Insights from May 2024
Welcome to Branta’s dive into the UK Mergers and Acquisitions (M&A) market, focusing on the latest insights available from the data in May 2024. This comprehensive review provides a clear snapshot of recent deal volumes, values, and valuation multiples, helping UK SME business owners navigate the ever-changing M&A landscape. The data is kindly provided by MarkToMarket.
Market Overview
Deal Volumes: A Mixed Bag
May 2024 saw a decrease in the number of deals compared to the same period last year. While this might initially seem like a negative trend, it’s essential to consider the broader context. The M&A market is inherently cyclical, and various external factors, including economic conditions and political changes, can impact deal flow.
May 2023 vs. May 2024
The data shows a decline in completed deals, with 385 transactions in May 2023 compared to 366 in May 2024. This 5% reduction in deal volume can be attributed to several key factors:
Political Uncertainty
The 4th July general election created a sense of uncertainty within the market. Businesses often hesitate to engage in significant financial transactions during periods of political instability, awaiting the election outcome which could impact economic policies and regulations.
Longer Completion Times
The average time to complete corporate finance transactions has increased to an estimated 13 months. This extended timeline delays the finalisation of deals, contributing to the apparent reduction in monthly deal volumes. Factors we know of that are slowing transactions include: buyers undertake longing periods of due diligence mainly around the seller proving their numbers in the management information against forecast, and restricted availability of credit.
Economic Factors
Broader economic conditions, including inflationary pressures and changes in interest rates, have also played a role in slowing down the pace of M&A activities.
Valuation Multiples
Valuation multiples are crucial for understanding how businesses are valued in the market. The report provides insights into both revenue and earnings multiples, offering a clear picture of the valuation landscape.
Average Multiples
For May 2024, the mean revenue multiple was 2.95x, while the mean earnings (EBITDA) multiple stood at 15.17x. These figures are derived from a mix of UK and international deals, reflecting diverse industry valuations.
It's essential to note that these multiples are heavily skewed by certain outlying deals, particularly those involving large, high-profile companies or sectors that attract high valuations such as SAAS businesses. For a more typical SME, the earnings (EBITDA) multiple is generally lower. On average, SMEs in the UK might expect to sell for an EBITDA multiple ranging from 4x to 6x, depending on the industry and specific business characteristics.
Deal Size Analysis
The average deal sizes reported in May 2024 highlight significant activity in the market, but it is crucial to understand how these figures are influenced by large, high-value transactions.
Mean and Median Deal Sizes
The mean deal size for May 2024 was £1.1 billion, while the median deal size was £170.4 million. This significant difference underlines the impact of large outliers on the overall statistics.
For our readership of smaller SME companies, it's important to recognise that these averages are heavily skewed by substantial deals involving listed and international companies. These large transactions can distort the perceived market conditions for smaller businesses. However, smaller deals are still very active within the broader M&A landscape.
Strategic Implications for SMEs
For UK SMEs considering M&A activities, the insights from this analysis can guide strategic decision-making:
Market Positioning
Understanding current valuation trends can help businesses position themselves more effectively for potential acquisitions or sales.
Sector-Specific Insights
With detailed breakdowns of deals by sector, SMEs can benchmark themselves against industry standards, identifying opportunities for growth, consolidation, or owners realising value.
Conclusion
The May 2024 insights into the UK M&A market highlight key trends, significant transactions, and valuation metrics. For SME business owners, these insights can inform strategic decisions, from growth initiatives to potential exits. Staying informed about market dynamics is crucial for navigating the complex landscape of mergers and acquisitions.
Self-Test Questions
Here are some issues to ask yourself or debate with your wider team:
- How might current political and economic uncertainties affect your business's readiness for a merger or acquisition?
- What is the typical timeline for your business to complete significant financial transactions, and how does this compare to the broader market trend of 13 months?
- Are there opportunities within your sector that align with the current valuation multiples for revenue and earnings?
- Considering the average EBITDA multiple for SMEs, how does your business's valuation compare, and what factors could enhance its attractiveness to potential buyers?
Are you considering a merger or acquisition?
Contact Branta today for expert advice on navigating the M&A landscape. Our experienced consultants are here to help you achieve your business goals.
