New figures from the Office for National Statistics have shown that the total number of domestic and cross border Mergers and Acquisition (M&A) transactions involving UK companies in 2013 fell to even lower levels than previously seen in 2012 and 2011.
Indeed, total M&A activity in 2013 remains below levels seen before the 2008 economic downturn and is the lowest since 1987 when overall M&A figures were first collected.
The figures also show that the number of transactions completed in Q4 2013 decreased when compared with the previous quarter, and the same quarter of the previous year (Q4 2012).
Andy Cox, head of Transaction Services for KPMG, commented: “On the face of it, recent talk of the M&A market being back appears to be somewhat overblown, with average deal volumes down year-on-year in 2013. However, it is notable that the average deal size has significantly increased from around £75m in 2012 to over £100m in 2013. This is a very positive trend in the market, and suggests that boards are being selective in targeting deals that will have the greatest impact on their business, rather than adopting a scattergun approach.”
He added: “For purse strings to loosen, particularly at the top end, we will need to see a significant strengthening of earnings, together with a sustained period of corporate optimism. And while the red-hot IPO market in the UK and in the US may point towards a strengthening of wider M&A, for all the positive sentiment, there is patently still a degree of doubt around the stability of the recovery.”
Jonathan Boyers, corporate finance partner at KPMG, added: “Although the number of actual completions remains low, it is my belief that the market has now bottomed out. Certainly our own strong pipeline indicates that it is the mid-market that will spearhead the M&A charge over the coming months.
“The startlingly high levels of IPO activity is stimulating shareholders of companies to explore exit options, and we are also witnessing an enormous amount of pent-up demand, both from owner-managers who have had to delay exit plans during the recession, or from ambitious companies who want to take advantage of the low cost of borrowing to drive forward their growth plans. Correspondingly, we are also seeing renewed interest from PE houses, which are also under increasing pressure to kick-start investments.”
He concluded: “Of course, deals don’t just happen overnight, so it will be the second half of 2014 before we see any real spike in completions. The coming months ahead will therefore be critical in setting valuation benchmarks for the future sale of assets.”
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