Mid-market continues to grow in confidence
Despite an overall decrease in the
volumes of transactions – 455 down from 543 – the mid-market is
where confidence continues to grow. There is a dearth of activity at
the higher and lower ends of the market due to a lack of large deals,
and small businesses are still struggling from the effects of the
recession.
The Private Equity Price Index (PEPI), the average price/earnings multiple paid by private equity companies, has again moved ahead of the PCPI. This, together with the fact that deal volumes have decreased, shows that private equity has the funds available and is prepared to pay well for good companies.
The PCPI multiple, 10.7x, is at its lowest level since Q1 2009 suggesting that buyers have the upper hand when it comes to pricing negotiations. This is due to the pent up demand of company sellers who initially held back, holding out for a better price before realising that the economic downturn was lasting longer than first expected.
In addition, no growth has been seen in the Financial Times Non-Financials Index which has been stable since Q2. The volatility in Q2 was partly due to the election of the new coalition government, however, the uncertainly is set to continue following the cuts outlined in the recent Comprehensive Spending Review.
Christopher Clark, M&A Partner at BDO LLP, commented: “Although the consensus view is that the UK economy is continuing to grow, UK businesses have recently faced uncertain times. However, now that the new coalition government is in place and spending cuts have been announced, business can start to plan for the future.
“The impact of recent uncertainties has seen pricing level out which has discouraged vendors from selling. Despite investor reports of increased opportunities, the uncertainty of the last few months is clearly having an impact on the number of completed deals.”
