“Keep calm and carry on dealmaking” – M&A surges in Q4

The final quarter of 2018 finished with a flurry of deals. 748 UK transactions completed in Q4, a prodigious rise of 21% according to the latest analysis of M&A transactions from accountancy and business advisory firm BDO LLP.

Businesses and financial investors have been stolidly standing by a “keep calm” mantra, pragmatically focused on the opportunity to carry on building great businesses.

BDO’s PCPI / PEPI quarterly report shows Q4 was by far the busiest quarter of the year, with both trade and private equity seeing significant increases in deal volumes. Overall, 2018 saw 2,569 deals completed which represents an 8% increase on 2017 volumes. The resilience of buyers and dealmakers has defied prevailing economic and political uncertainties.

Likewise, valuation multiples held firm, with private equity continuing to pay higher EV/EBITDA multiples on average than trade. These indices, which track the multiples paid by trade and private equity buyers for private companies, underline the health of the current M&A market. Trade multiples (PCPI) rose slightly to 10.4x and the Private Equity Price Index (PEPI), which tracks the multiples paid by private equity buyers, saw a small increase to 12.1x in Q4 confirming the abundance of investment capital available and the willingness to pay well for attractive assets. Towards the end of Q4, the FTSE all share index dropped to 11.5x, the lowest level seen in four years and potentially a harbinger of a 2019 valuation decline in private company M&A.

Roger Buckley, M&A Partner at BDO, commented: “The M&A market has remained resilient, with strong transaction volumes and values persisting through to the end of 2018. This reflected BDO’s experience with a strong end to the year confirming BDO’s position as the UK’s no1 M&A adviser by volume in 2018.

“We saw huge capital flows in the market fuelling demand and outstripping supply and whilst, these fundamental market dynamics continue to exist, the latest BDO Business Trends report and decline in the FTSE all share index at the end of 2018, highlight stronger headwinds for M&A at the start of 2019.”