UK&I M&A Market Shows Recovery: Increased Transaction Activity Observed

The recovery of the UK&I M&A market has continued over the past six months. In the second half of 2023, the number of sell-side transactions rose 6% and the average sale price of an SME remained stable at 5.1 times gross profit.

These are the most important findings of the UK&I M&A monitor, the periodic survey from Dealsuite that looks into M&A market trends in the UK&I. The research was drawn from 329 M&A advisory firms that focus on companies with a revenue of £1-200mn.

The average EBITDA multiple remains stable

Following a decline in the average EBITDA multiple from 5.3 to 5.1 during the second half of 2022, the multiple has remained stable at 5.1. The average EBITDA multiples per sector did change across sectors. For instance, the multiple within the Industrial & Manufacturing sector dropped from 4.8 to 4.6, while the Construction & Engineering sector noted an increase from 3 to 3.2. Companies in the UK&I region are priced more competitively relative to those in neighbouring countries, showcasing the average EBITDA multiple of 5.1. This figure is beneath the 5.5 average observed in the DACH region and the 5.3 in France. Meanwhile, businesses in the Netherlands achieve an average EBITDA multiple of 4.75.

Vendor loans a more attractive financing option

In periods of elevated interest rates, vendor loans are an attractive option for funding. Vendor loans were used in 69% of the transactions that involved debt financing. Floyd Plettenberg, CEO of Dealsuite, explains that this approach has several advantages. “Vendor loans primarily signal the bank’s trust in the new owner, which encourages the bank to extend more financing, facilitating the completion of the deal. Moreover, a subordinated loan with an interest rate of around 8% currently generates three times more than placing the money in a savings account. Therefore, it presents benefits on multiple fronts, creating a classic win-win situation.”

Positive outlook for H1-2024

Despite a fraction (23%) of advisors expressing dissatisfaction with the latter half of 2023, the vast majority viewed the period positively. The outlook for the M&A market in the UK&I for the first half of 2024 is notably promising, with an overwhelming 77% of advisors demonstrating optimism for the upcoming period. This prevailing optimism signals a confident and robust market forecast.