The last quarter of 2014 ended with the largest M&A deal volumes since 2011, according to the latest PCPI/PEPI index from accountancy and business advisory firm BDO LLP, indicating that uncertainty around the looming General Election is not curbing M&A activity.
The index, which tracks the multiples paid by trade and private equity buyers, reports a 14% increase in trade deals compared to the previous quarter. Private equity activity was still buoyant but down from a sky-high 107 to 97.
Prices paid for private companies continued their upward trajectory. Trade multiples have moved up strongly from 10x (Q3) to 11.7x (Q4), while private equity multiples increased from 8.0x to 9.5x. This reflects the premium trade buyers and private equity investors are willing to pay when faced with a shortage of quality businesses on the market.
UK-wide the financial services sector was the most active in terms of deal volumes, accounting for 27% of the 4,936 deals completed in 2014. However, manufacturing takes the lead in the West Midlands with a third of all deals in the region involving manufacturing companies according to the BDO West Midlands Report.
The number of deals in the region that involved mid-market companies increased by 30%, while deal values increased by 26% for these companies. Cross border transactions also played their part in the West Midlands, with those involving US and German companies accounting for more than 10% of deals.
Roger Buckley, M&A partner at BDO in Birmingham, said: “Last quarter concludes a solid year of trading for companies. We are seeing corporates and private equity firms remaining keen to acquire in the lead up to the impending General Election, despite the uncertainty that this represents.
“The increased volume of deals coupled with the improved multiples show that there is dry powder and a willingness to spend cash reserves on good businesses. We can expect that technology and regulation will continue to act as the major drivers of deal activity, particularly in the financial services sector. Locally, manufacturers will continue to play an important part of the trade and private equity landscape.
“Overall 2014 was a successful year for many businesses and we at BDO enjoyed a record year of deals in the UK, completing 250 deals with a combined value of £11bn. Based on the current pipeline, there appears to be a positive outlook for deals in 2015. Activity remains strong and while deal-making often takes a pause during election time, there is every reason to remain hopeful for another buoyant year for M&A.”