M&A Monitor August 2024

Introduction

Thank you for taking the time to read this H1-2024 version of the UK&I M&A Monitor. This report consolidates research performed by Dealsuite, the leading UK&I and international platform for M&A transactions. It contains statistics and trends for the UK&I M&A mid-market (enterprises with a revenue between £1 million and £200 million) over the first half of 2024.

Dealsuite contacted 428 M&A advisory firms operating within the UK&I M&A mid-market.

The aim of this study is to create periodic insights that improve the UK&I market’s transparency and to serve as a benchmark for M&A professionals. We are convinced that sharing information within our network leads to an improved quality and volume of deals.

Floyd Plettenberg MSc. EMFC
CEO Dealsuite

I Transactions

Increase in the Number of Sell-Side Transactions (9%)

The advisors who took part in this research were involved in the following number of transactions in the first half of 2024:

Some of the businesses sold involved a respondent on both the sell- and buy- side. Therefore, we cannot sum up the sell- and buy-side transactions to arrive at a total number of transactions.

After a turbulent 2023, both the ECB and the Bank of England announced an interest rate cut in June (ECB) and August (BoE) 2024, for the first time since 2019 and 2020, respectively. These rate cuts provide a positive boost to the market. Economic forecasts for 2024 were already positive, and market confidence appears to be returning. The number of buy-side transactions has increased by 1% compared to H2-2023, while the number of sell-transactions rose by 9%.

Less Transactions in the IT Services Sector, More in the Industrial & Manufacturing Sector

The distribution of transactions completed in H1-2024 across sectors is illustrated in Figure 2. Compared to H2-2023, where the IT Services sector saw a significant uptick in transactions, the sector now experiences a drop of 4 percentage points. In contrast, the Industrial & Manufacturing sector, which saw a drop in transaction share in H2-2023, has increased by 3 percentage points, representing 14% of all transactions.

Increase in Average Transaction Size Recorded in H1-2024

After a decrease in average transaction size in H2-2023, the average deal size increased again in the first half of 2024. Over half of the closed transactions had a deal size above 5 million (51%), compared to 38% in H2-2023. Additionally, the share of transactions with a deal size below 2.5 million dropped from 41% in H2-2023 to 31% in H1-2024.

II Assignments

Half of the Advisors Report an Increase in the Number of Assignments

The results are explained in more detail in Figure 4 below. These are assignments received in H1-2024 and completed in H1-2024, however, it is worth noting that some of these projects may be completed during a later period or canceled.

In H1-2024, 39% of advisors reported a similar number of transactions compared to H2-2023. 11% of advisors noticed a drop, while half of the advisors reported an increase in the number of assignments.

III Sector Multiples

The Average EBITDA Multiple Increased to 5.2

Sell-side advisors defined the average EBITDA multiple by industry. In this edition, the advisors were asked to revise the industry multiples from H2-2023. The results are shown in Figure 5.

The average EBITDA multiple has increased from 5.1 to 5.2 in H1-2024. Looking at the individual sector multiples, the majority of multiples have increased. The EBITDA multiple for the E-commerce & Webshops sector did note a drop from 7 to 6.7, as well as the multiple for the Healthcare & Pharma- ceuticals sector which dropped from 7.8 to 7.7. The biggest increase in sector multiple was reported in the Construction & Engineering sector, this multiple increased from 3.2 to 3.5.

 Biggest Spread Reported in the IT Services Sector

A sector can contain various types of companies with different characteristics. As a consequence, businesses in a specific sector may also vary in EBITDA multiple. Figure 6 shows the spread of EBITDA multiples per sector. For some sectors, a wider spread in EBITDA multiples is reported, compared to sectors that contain a higher proportion of similar companies. The results below are calculated using the standard deviation. Based on the research data, we can say with 95% confidence that the true value of the parameter lies within the bounds of the confidence interval.

IV Cross-border Transactions

A comparison of EBITDA multiples between different countries highlights the advantages of cross-border deals. For example, it can be beneficial to buy a particular company abroad or to sell a company to an international buyer. Figure 7 shows the differences in EBITDA multiples between European markets.

V Average Age of Businesses Offered

Companies Are Offered for Sale Earlier

Over the past decade, the business landscape has undergone significant changes. Technological advancements have surged, more companies are being founded, and businesses must work harder to stay ahead of the competition (McKinsey, 2024). Mergers and acquisitions are becoming increasingly popular among companies of various sizes. Advisory firms were asked about the average age of companies being offered for sale. The results can be found in Figures 8 and 9.

According to the majority of advisors (51%), a company is typically first offered for acquisition between its 10th and 20th year of existence. Additionally, 26% of advisors report that companies are now coming to market earlier than 10 years ago. Only 5% report that business owners are retaining ownership for longer.

VI Buyers intent

The M&A market is a “seller’s market,” with more demand than supply. The ratio between demand and supply varies by sector. M&A advisory firms were asked to indicate the demand-to-supply ratio for each sector. In other words, on average per sector, how many serious interested parties contact the seller for each business. The results are shown in Figure 10.

Several factors can influence the number of interested parties per offered business. For example, financing a business and its operations becomes more expensive with high interest rates, while high inflation and market uncertainty can affect buyers’ willingness to purchase. From 2022 to 2023, the average number of interested parties decreased across all sectors. However, in the first half of 2024, there is an increase in the number of interested parties per sector. Demand in the Software Development sector remains unchanged, with an average of 12.2 interested parties.

On average, 8.1 interested parties showed interest in each business offered, compared to 7.5 a year earlier.

VII Outlook

Vast Majority of Advisors Have Optimistic Expectations for H2-2024

Assessing the performance of the UK&I M&A mid-market is based on many factors, including the willingness of entrepreneurs to sell their businesses, funding availability, macroeconomic developments, etc. An interpretation of these factors is needed to determine how the market will develop. The survey included both assessments of the M&A mid-market in H1-2024 (retrospective) and H2-2024 (projection).

28% of advisors look back at H1-2024 with an unsatisfied feeling, while the majority of advisors look back at the same period with a positive feeling (72%). The outlook for H2-2024 looks promising, and the vast majority of advisors (89%) are optimistic about the second half of 2024.

VIII Dealsuite Platform Data

Through Dealsuite, M&A advisory firms present sales mandates to potential buyers. Figure 13 shows the annual revenue of companies offered for sale on Dealsuite in H1-2024. Depending on the transaction timeline, some of these deals will either be completed or fall through in H2-2024 or H1-2025. We can consider this data a tentative forecast of the size of companies likely to be sold in the coming quarters.

This platform data reveals that one-third of the deals listed on Dealsuite in the UK&I region had an annual revenue of less than €2.5 million. 27% of deals had a revenue between €2.5 million and €5 million. 23% of the deals had a revenue exceeding €10 million.

IX Method

The majority of M&A transactions take place in the mid-market. This M&A Monitor uses the definition of a mid-market company as having a revenue between £1 and £200 million. The survey that was the basis for this M&A Monitor was sent to 428 M&A advisory firms. Considering their combined input, they represent an essential part of the M&A mid-market in the UK&I. Out of the total of 428 advisory firms, we received 108 responses (25% response rate).

Sources used:

• 108 survey responses from senior managers of UK&I M&A advisory firms
• Dealsuite M&A Monitors 2015-2024
• Dealsuite transaction data 2015-2024
• Field, A. (2011) Discovering Statistics SPSS. Third edition, SAGE publications, London. 1-822
• Grabowski and Pratt (2013). Cost of Capital: Applications and Examples.
• McKinsey. McKinsey Technology Trends Outlook 2024

This research was conducted by Jelle Stuij, and Roos Bijvoet. For further questions, please contact Tariq Mooseajee.