Private equity played a major role in last year’s M&A activity, both globally and in the UK.
Worldwide private equity funds accounted for c.40% of total M&A deal volume, while in the UK almost 50% of public M&A deals involved private equity– either as the principal bidder or backer.
As part of NumisFocus: An inside-out study of UK mid-market M&A, we surveyed both institutional investors and FTSE 250 directors. For investors, we discovered that 89% regard the increasing levels of private equity activity to be ‘positive’ or ‘very positive’.
We expect another active year for deals and for private equity to continue to play a major role. The Russian invasion of Ukraine (launched after our survey was completed) may cause some bidders, vendors and financing providers to pause amidst the current uncertainty.
The crackdown on Russian oil imports and the sharp rise in prices are likely to have significant inflationary effects on certain sectors, notably manufacturing. However, disruption will also create opportunities for some buyers and share price falls at listed companies may be a lure that private equity bidders find hard to resist. Ongoing public bid situations for the Ted Baker, Ideagen, RWS and Homeserve have already shown private equity appetite and activity remains.
Nearly one in five (18%) of FTSE 250 directors that we surveyed said that even before the Ukraine crisis, they felt their business was highly vulnerable to a bid, with 61% saying they were ‘somewhat vulnerable’. This sense of vulnerability is likely to have increased given recent share price declines.
As well as market prices becoming more attractive in recent weeks, other fundamental drivers remain in place, including historically low borrowing costs and favourable exchange rates.