The UK’s appeal as an Investment Destination could Drive M&A Activity

London Lucas Davies

Issuing any dealmaking predictions for Q2 and Q3 2024 is a precarious occupation. As things stand, Britain and Europe as a whole are still subject to the economic headwinds caused by peak inflation, and the ongoing impact of the terrible geo-political conflicts in the Ukraine and the Middle East.

Yet underlying this picture are key indicators that demonstrate instances of resilience, highlighting not only the attractiveness of British companies and Britain as an investment destination, but giving deal teams and company owners good reason to be optimistic.

 

Britain’s Attractive Market

One key stimulus for growth is foreign direct investment (FDI) and Britain has remained an attractive destination for investors in the post-lockdown era, taking second place only to France in terms of volume and significantly ahead of Germany in 2022. [EY Europe Attractiveness Survey 2023]

This is partly due to Britain’s position as a top three European economy, despite sustained volatility, and being ranked fifth globally at the end of 2023, based on its Gross Domestic Product (GDP). It is also due to the liquidity of its financial markets and the availability of capital, the strength of the domestic market, business infrastructure, legal and regulatory environment, and London’s position as a global financial centre.

Source: EY Attractiveness Survey 2023

https://assets.ey.com/content/dam/ey-sites/ey-com/en_ro/news/2023/5/ey-european-attractiveness-survey-2023.pdf

 

Deal Activity

Globally the total estimated M&A deal count in 2023 was​​ 40,200 which was the third highest transaction volume on record, despite falling valuations, and a trading cycle which delivered year-on-year growth in real terms of circa 4.4%. Interestingly, the global trading EV/EBITDA multiples for non-publicly listed companies ticked upwards between 2022-2023 [Source: Pitchbook 2023 Annual Global M&A Report; Data from North American and European deals].

It is also interesting to note that an analysis of European Private Equity deal values as a share of annual total by region shows that for three years running the UK and Ireland accounted for over 30% of annual deal value, over the period 2021-2023.

According to the M&A Attractiveness Index Score by Bayes Business School’s Mergers and Acquisitions Research Centre in 2023, the UK remained a top target in Europe for inbound and domestic investment. The study, which looked at 148 countries worldwide, placed the UK in second place behind America.

https://www.bayes.city.ac.uk/news-and-events/news/2023/august/uk-ranked-as-the-top-investment-destination-in-europe-by-m-and-a-attractiveness-index-score

London Lucas Davies

 

Preparation is Essential

What this broader global picture means for UK SMEs is that business owners can approach a company sale with confidence, not least because the UK holds an attractive position in the eyes of foreign investors.

Additionally, due to the presence of multinational firms already established in Britain, as well as Private Equity firms and other investors that actively look at UK companies as part of their cross-border portfolio building, UK SMEs should feel quietly confident when considering a sale.

Any company sale is a complicated process and demands an appropriate level of skill/expertise. What is essential is that business owners do prepare thoroughly before embarking on a sale, which includes getting your house in order, and speaking with business sale professionals and financial/legal experts, to ensure that you can achieve the best possible outcome.

In closing, the attractiveness of Britain as an investment destination remains a persistent feature, despite a background of economic headwinds, something that should give company owners, deal teams and acquirers alike, good reasons to be cautiously optimistic.

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