Sunday, September 19, 2021

Midlands M&A market continues to recover

The Midlands M&A market continues to recover at the half year point of 2021, according to Experian’s H1 M&A Review, with a 24% increase in deal volumes and a 200% increase in value compared to the first half of 2020.

While the signs of recovery from the impacts of the global pandemic are starting to show,
the review says there is still some work to be done, as the comparison with 2019 show a small decline for both volume and value.

The value of transactions in H1 2021 is £7.96bn, and although an impressive increase on the figures from during lockdown part one, the comparison with 2019 and 2018 is less than favourable, showing a decline in overall figures of 4% and 36.5% respectively.

Acquisitions remain the most prevalent deal type in the Midlands with a total of 351 transactions, up from 267 in H1 2020. There is evidence of a move away from development capital deals in the region, as they dropped by 35% from last year, representing only 8% of all transactions compared to 16% in H1 2020.

The Midlands was the busiest region for deal making outside of London and the South East,
with an involvement in around 15% of all UK deals, while contributing 5% to their total value.

There were three mega deals in the top ten in the Midlands for the first half of 2021 – an acquisition, a flotation and an IBO. The largest deal was the £2.6bn acquisition by US engineering company Madison Industries of the Nortek Air Management division of Melrose Industries of Birmingham, an investor in manufacturing and engineering businesses.

The IPO saw private equity firm Permira divest its holding in Dr Martens for a total offer size of £1.3bn on the Main Market of the London Stock Exchange, while the IBO was led by Blackstone Group and involved the purchase of publicly listed property company St Modwen Properties for £1.2bn.

In H1 2021 so far, Experian has seen a shift away from development capital deals to IBOs, and the volume of transactions for this deal type has increased by 130%, to 23 deals.

The most active industry in the Midlands M&A market remains manufacturing, with a total of 160 transactions, up from 101 in H1 2020 – a 58% increase. Wholesale and retail was the second most active industry with a total of 122 deals, up 41% on the 86 recorded at this point last year.

In total there were 13 sectors that followed the regional trend and returned an increase in the volume of M&A transactions, with two remaining constant and four bucking the trend and declining. While the volume of real estate transactions has declined by almost 50% during H1 2021 the value of these deals has increased to £1.3bn from £565m. The value surge for real estate deals is largely a result of the previously mentioned IBO of St Modwen Properties.

While private equity funded transactions increased in H1 2021 from 62 up to 68, the number of deals supported by bank debt declined from 49 to 44. The most active investor was the Business Growth Fund (BGF) with six transactions, while Shawbrook Bank, the most active debt provider, supported a total of nine transactions. A total of 37% of development capital transactions in the Midlands involved financing through bank debt or loans.

The top-ranking adviser for the Midlands was Gateley, with a total of 39 transactions, retaining the top spot they enjoyed in the last report. Second place also remains the same with Harrison Clark Rickerbys advising on 27 transactions in the first 6 months of the year, while Higgs & Sons are third with 22 assists.

In terms of value Linklaters was the highest ranking advisor with £1.6bn worth of transactions followed by Kirkland & Ellis and Shakespeare Martineau. K3 Capital were top of the Midlands financial advisers with 33 transactions, followed by RSM with 27 and Azets assisting on 15 deals. Citigroup shared top spot in the value table with Robert W Baird
& Co and Investec Bank, each with a role in the Madison Industries / Melrose deal.

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