Sunday, June 26, 2022

Midlands deal activity shows resilience

Midlands M&A activity has showed resilience “despite the hardships that extended lockdown has inflicted on the deal making world,” according to Experian’s Q1 2021 M&A Review.

The volume of Midlands M&A activity dropped by only 5.8% compared with Q1 2020. More transactions for the quarter are likely to be recorded throughout the year and this decline may get smaller yet – and on a positive note, the Q1 volume figures are more than double the quarterly volume recorded for Q2 last year at the start of the pandemic.

The value of transactions this quarter has increased by 43% to £2.8bn, with no deals worth more than £1bn recorded during the first quarter of 2020.

Five of the biggest deals in the Midlands involved public companies. The top of these was the initial public offering of famous Northamptonshire footwear brand Dr Martens, which
raised £1.3bn in new funds at a market capitalisation of £3.7bn. Private equity backer Permira paid just £300m for the company in 2014.

Hospitality joined retail in the public markets as Mitchells & Butlers of Birmingham, the owner and operator of the O’Neills, All Bar One and Harvester restaurant chains, looked to raise funds on the stock market with a £350m open offer which completed in March.

This quarter also witnessed some notable cross-border activity in the Midlands, with the bio-tech sector acquisition of Retrogenix of Derbyshire by US life sciences firm Charles River Laboratories International, for approximately £40m.

In the industry analysis Experian noted some healthy signs that the more prominent sectors are returning to growth in terms of M&A activity. Manufacturing, the largest sector
in the Midlands, saw the quantity of deals increase by 38.5% from 65 in Q1 2020 to 90 in the first three months of this year. The value of manufacturing deals rose from £807m to £1.8bn.

There were eight other industries that experienced growth in M&A transactions during this
period. These included infocomms which had an increase of 32% where transaction went from 38 in Q1 2020 to 50 so far this year, and financial services with a 14% increase.

While management buy-out’s remained consistent compared to Q1 2020 with 17 transactions, an up and coming deal type was the employee buy-in/by-out, often conducted through an Employee Ownership Trust. There were no EBO’s recorded in Q1 2020, while already this year there has been five.

The volume of private equity-backed transactions fell from 40 transaction to 28 this quarter, yet there was more investor buy-outs this quarter (with 11, compared to seven last year). Business Growth Fund (BGF) was the main source of capital to firms in the Midlands, completing four investments in both quarters. Bank debt was also down as a source of funds; the top provider was Shawbrook Bank, which provided funds in support of six deals.

Gateley retained their top spot in terms of volume of transactions in Q1 2021 with a total of 22 assists since the start of the year. Higgs and Sons moved from sixth to second position with 17 transactions this quarter.

In terms of value, the leader of the group was Shakespeare Martineau, with a total value of £1.4bn from 14 transactions, closely followed by Freshfields and Linklaters, both with £1.3bn for the quarter.

The busiest financial adviser for the Midlands was K3 Capital Group with 20 transactions and RSM second with a total of 18 deals. The value ranking has Morgan Stanley at the top
with a total value of £1.6bn as a result of advising on the two largest transactions of the quarter. Joint second place is held by the other advisers on the Dr Martens IPO, including Goldman Sachs, Bank of America, Barclays, HSBC, Lazard and RBC Europe.

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