Regional M&A market continues its strong run into 2023

The years 2021 and 2022 marked a high point in the national mergers and acquisitions market. At HURST, we closely mirrored this trend, being engaged on an unprecedented level of deals, both in number and size. Strong M&A activity has continued into 2023, and we are currently working on multiple buy- and sell-side transactions.

Our experience shows that much of this M&A activity is, as to be expected, fuelled by private equity activity. Regional funds continue to be very active post-pandemic, investing in businesses that have the right blend of quality ideas, a driven management team, and a desire to succeed.

However, perhaps more unexpected is the level of trade-related deal activity. In our experience, the ratio of private equity deals to trade deals tends to lean towards the former. However, our recent M&A work has been significantly amplified by trade buyers, who now appear to be equalling and even outshining private equity in their desire to acquire great businesses.

Some facts and figures

By way of illustration, in the past 24 months we have worked on:

• 60 buy-side transactions, of which
• 60 % are trade acquisitions and
• 40 % are private equity deals

Among these deals, there is a clear emphasis in the following sectors:

• technology
• health-care
• specialist manufacturing
• civil engineering
• specialist services

Tech and health-care continue to attract private equity interest. Local funds remain attracted to businesses that can demonstrate the key characteristics of growth, innovation and ambition in these areas.

Trade buyers are obviously much more focused on their particular sector. However, we are seeing hot spots in the manufacturing, engineering, and services spaces noted above. Investment here is driven particularly by interest in strong innovation and ground-breaking research and development. But the other key factor appears to be geographical expansion, where we are seeing trade operators buying up similar or competing businesses established in different regions and even in other countries.

Currently we are working both with businesses looking to gain comfort that their own financial affairs are in order, and with private equity investors and trade buyers looking for a clear steer on the tax risks inherent in the businesses they are buying.

It’s also interesting that there are some common themes we pick up on our due diligence work. For example, employment taxes are a perennial area of focus, including compliance with the national minimum wage regulations, employee share scheme reporting obligations, and employee benefits. VAT compliance, especially with the new rules around filing and late payment penalties, also features heavily in the remedial action we see taking place.

Current drivers for M&A

So what is driving such strong M&A activity in our region? My guess is that there are at least two key factors in play.

• The first is that quite simply there remains a lot of money out there still looking for a good home. Until recently this was driven by the low rates of return for cash, which prompted investment into businesses as an alternative safe home. This is changing with the increase in interest rates, but my view is that investors still want a to be part of great regional business successes.
• The second is that despite the political and economic turmoil of the last few years, the North West continues to be a resilient place for businesses to flourish. Access to a large and well educated labour pool is key, as is the well-connected regional transport network.

Summary

It’s been a really eventful few years in the regional M&A market, and we anticipate being equally busy for the next twelve to twenty-four months.

And one pleasing aspect of this trend is that, unlike some suggested forecasts, we have yet to see much of a downturn in regional M&A activity since the 2022 peak. Our pipeline of deals remains strong and our clients show no disinclination to continue investing in quality businesses in the region.

Over the period, it has been, and remains, our privilege to help our clients with their acquisitions, as well as enabling business owners to realise some of their investments, all in a very strong deals market.