M&A market shows strong recovery in UK&I

September 02, 2021 Jelle Stuij
Head of Marketing & Operations

Amsterdam, 2nd September 2021 - In the first half of 2021 the UK&I M&A market demonstrated a strong recovery. The number of companies sold increased by 59 percent. On average these companies were sold for 5.5 times their gross profit.

These are the most important findings of the UK&I M&A monitor, the periodic survey of M&A platform Dealsuite into data and trends for the M&A market in the United Kingdom and Ireland. The research was conducted among 318 M&A advisory firms that focus on companies with a revenue between 1 and 200 million pounds.

Sector differences

Similar to the second half of 2020, there were large differences between sectors. During the past 6 months, the share of companies sold in the sectors Industrial & Manufacturing and Construction & Engineering increased. The sectors Hospitality & Tourism, Agri & Food and Media & Communication reported the lowest number of transactions. The share of companies sold in the Hospitality & Tourism sector dropped by an astonishing 60 percent.

K-shaped recovery

On average, in the first half of 2021, the price paid for an SME was 5.50 times its gross profit, which increased compared to 5.40 in the second half of 2020. However, this recovery is K-shaped. The average Ebitda multiples for companies in the IT Services & Software Development (8.65) and Healthcare & Pharmaceuticals (8.40) increased the most. For companies in the sectors Retail Trade (4.10) and Hospitality & Tourism (3.65), the average prices paid decreased compared to the second half of 2020.

Sustainability increasingly important

This edition of the monitor was the first to analyse the impact of ESG (Environmental, Social and Governance) on the valuation of SMEs. ESG refers to the three central factors in measuring company sustainability. According to Floyd Plettenberg, CEO at Dealsuite, people are increasingly looking at sustainability when buying from companies. “The consumer is increasingly buying from companies that place a high value on sustainability. In the M&A market, interest in sustainable companies is therefore also increasing. The adoption of ESG factors in the investment decisions will therefore become standard in the upcoming years”. According to the respondents, ESG is a formal part of the investment decision in 13 percent of cases, although it weighs heavily or even decisively in only 2%. An overwhelming majority of all advisors (95%) expect the impact of ESG on the valuations of SMEs to increase in the future. Only 5% expect ESG to have no impact on valuations in the future.

Outlook

The outlook for the UK&I M&A market in the second half of 2021 is very positive. The large majority of advisors (92%) are optimistic about the months to come. Relative to H1-2021, the majority of the advisors (57%) expect a similar situation in the second half of 2021. 25% expect further improvements and 18% deterioration.

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