In 2021, so far, the Midlands M&A market has two different trajectories, according to Experian’s latest M&A Review, with overall activity receding after a flurry of deals recorded in the first quarter, even as the total value of deals continues to rise from the troughs experienced in Q2 and Q3 2020.
Taking the first nine months of the year as a whole, transaction volume was up by 27% to 745 transactions, while the total value of Midlands M&A reached £17bn – compared to only £3.4bn at this point in 2020 – with over 50% of this figure announced in the third quarter.
Drilling down, small and mid-market deals have both improved from last year by approximately 20%, large deals were up by around 67%, while the biggest impact on the overall value figures has come from the four deals with a value of £1bn and above announced during this year – there were no such deals recorded in 2020.
The Midlands was the UK’s third most active region for deal making in the first nine months of the year, with an involvement in 14.5% of all UK deals by volume and 6.7% by value.
There were four mega deals in the top ten in the Midlands for the first nine months of 2021, with three of the largest transactions featuring a US bidder seeking a Midlands based target company. In August Parker-Hannifin Corp announced a recommended cash acquisition of £6.3bn for the entire issued and to be issued ordinary share capital of Coventry-based Meggitt, which designs and manufactures systems and components for the aerospace, defence and electronics markets.
Announced during Q2 was the £2.6bn acquisition by US engineering company Madison Industries of the Nortek Air Management division of Melrose Industries, an investor in manufacturing and engineering businesses and US private equity group Blackstone’s £1.2bn buy-out of St Modwen Properties. Overall during the first three quarters of the year there were 20 transactions with a US-based bidder, and five transactions involving a US target with a Midlands-based bidder
The most active industry in the Midlands M&A market remains manufacturing, with a total of 224 transactions, up from 150 during Q1-Q3 2020 – a 49% increase. Wholesale and retail was the second most active industry with a total of 183 deals, up by 46% on the 125 recorded last year. The most valuable sector in the region was also manufacturing with £11.8bn worth of transactions.
While the construction industry saw volume rise by 50%, the real estate sector was one of the few to decline by around a third year on year, with 26 transactions so far in 2021 compared to 39 at this point in 2020. It was a different story in terms of value, with the combined consideration of deals in the construction sector dropping by 82% from £556m to £100m, while real estate deals increased from £738m to £1.5bn.
While the volume of development capital transactions has dropped from 97 deals down to 75 during the first nine months of the year, the number of private-equity funded transactions actually increased slightly, from 98 up to 106. This is perhaps a result of the increase in the number of PE-backed management buy-outs recorded so far this year, with 49 MBOs in all, compared to 34 last year.
The most active capital provider in the Midlands was the Business Growth Fund with nine transactions. The volume of bank debt funded deals has also increased, with Maven Debt Finance a key player with 13 transactions, followed by Shawbrook Bank, which supported a total of nine deals.
The top-ranking advisor for the Midlands was Gateley with a total of 63 transactions, retaining the top spot they enjoyed in the last report. Harrison Clark Rickerbys was in second place, advising on 38 deals in the first nine months of the year, while Higgs are third with 32 assists.
In terms of value, Freshfields Bruckhaus Deringer was the highest-ranking advisor with £7.6bn worth of transactions, followed by Slaughter and May and Weil Gotshal & Manges. K3 Capital were top of the Midlands financial advisers with 46 transactions, followed by Grant Thornton with 38 and RSM assisting on 35 deals. The value table is headed by Citigroup on £8.9bn, followed by Morgan Stanley and Bank of America.
