A new report has revealed that the South East of England was the most active region of the country outside of London for high-growth M&A deals in 2023. Last year, the South East saw 139 high-growth M&A deals, behind London (283) and just ahead of the North West (131).
The report from Cripps, analysing Beauhurst data, looked at exit activity among high-growth companies in England. Beauhurst identifies such businesses via eight triggers suggesting potential for high growth. These include: equity investment; debt investment accelerator programmes; scaleup status; MBOs/MBIs; innovation grants; 3rd party high growth lists.
Cripps stated that, since 2019, the South East has consistently ranked second for M&A deal volumes behind London, only being beaten by the North West in three quarters during that period. According to the report, the region benefits from hosting a large business base and its close proximity to London.
Despite once again ranking second in England, the South East was not immune from the overall decline in M&A activity that the country saw across all regions last year, with deal volumes down 21.9 per cent compared to 2022. (which saw 178 deals).
While this was a far more significant drop than the fall seen in other areas, such as the East Midlands (3.64 per cent), the East of England (4.35 per cent) and the North West (17.6 per cent), it was less dramatic than in other regions.
Activity in London fell 22.3 per cent, South West deal volume fell by 22.7 per cent and the North East by 24.2 per cent (the lowest activity of any region, with just 25 high-growth deals), while the biggest drop was seen in the West Midlands, which saw high-growth M&A fall 41.2 per cent compared to 2022.
In the South East, M&A peaked last year during the third quarter, with 40 high-growth businesses sold, while the lowest total was seen in Q4, with 32 deals. This shows a significant decline from the highest quarterly total recorded during the past five years in Q1 2021, when the region saw 66 deals. This was a trend reflected across the wider UK ecosystem of high-growth companies.
As well as likely being boosted by pent-up M&A demand post-COVID, Cripps also states that activity in early 2021 was helped by factors including “low-interest rates, strong cash balances at corporate acquirers and favourable foreign exchange rates for foreign investors and acquirers.”
Since then, activity has declined amid factors such as successive interest rate increases, which have made investors more cautious. The report also cites valuation gaps between buyers and sellers as a key factor behind the decrease in deals last year, a challenge which Cripps said is already impacting activity in 2024.
Despite the M&A challenges that the South East and the UK more broadly are facing, Cripps Corporate Partner Salim Somjee sounded an optimistic note: “As a long-standing champion of ambitious, high-growth businesses in our region – as well as the UK and abroad – we are pleased to see that the South East is fertile ground for corporate transactions – even in the challenging conditions of 2023.”
“We expect to see further M&A activity this year as some companies scale up, while others contend with macroeconomic headwinds.”
In terms of which sectors of the South East economy saw the most high-growth deals, analytics, insight and tools was first, with 15 company sales (11 per cent of the region’s total). The report points out that many companies in this sector operate via a Software-as-a-Service (SaaS) model, with the SaaS sector tied in second place with food and drink processors (13 deals each).
Discussing this year’s outlook for the sector Matthew Holman, Cripps Partner, Technology, commented: "The technology sector in the South East is incredibly strong. Tech companies remain attractive to investors and, increasingly, we are seeing large corporates acquiring small tech service providers. AI is set to the be the big growth area of 2024. It effects all sectors of the economy from financial services to manufacturing to public sector to online service providers. It also increasingly affects our daily lives whether at work, at home or on the go.”
“And finally, it affects our democracy: 2024 will almost certainly see the UK go to the polls in a general election. Expect tech, and particularly AI, to be a key political battleground whenever productivity, the economy and national growth is being debated and expect AI to play a big part in political campaigning. Companies with unique AI solutions and services will become hot property in M&A during 2024."
SMEs are expected to be vital to M&A in 2024, both as buyers and as acquisition targets
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