Spotlight: UK and Ireland
Dealmaking conditions tightened notably in Q3, as borne out in our latest heatmap analysis.
Rising inflation, higher interest rates and mounting supply side constraints all made for a very tough dealmaking climate in Q3. Across Europe, the tempo of PE activity slowed markedly, and the total value of all transactions was down 46% compared to the previous quarter.
The UK and Ireland were not immune to these headwinds. The last twelve months (LTM) multiple in the UK decreased, largely driven by multiple erosion in sectors such as consumer, while there were 49 deals in the quarter compared to 57 in Q2. The UK has now seen 204 deals in the LTM compared to 225 in Q2, a continued fall from the peak of 315 in Q3 2021.
In such a difficult climate, investors are looking for targets that promise long-term resilience, and sectors such as business services and TMT continue to offer strong prospects.
business services and TMT continue to offer strong prospects
TMT in particular has strong countercyclical characteristics that mean it is well-placed to thrive in the midst of economic disruption. Resilient fundamentals, recurring revenues and robust environmental, social and governance (ESG) credentials make TMT an increasingly attractive sector for PE investors.
During Q3 business services saw an uptick in deal volume in the UK, completing 21 deals, and also overtook TMT in terms of LTM volume with 55 transactions compared to TMT’s 52 deals.
Across Europe as a whole, star performers in terms of volume in Q3 were TMT and industrials & chemicals, although in both cases volumes were down compared to the previous quarter.
Total quarterly deal value in UK and Ireland in Q3 came in at €13.9bn, sharply down on the record quarter in Q2 of €28.3bn.
close to a record quarter for business services values
However, it was close to a record quarter for business services values, which was also the highest of all sectors. This figure was particularly driven by Clayton, Dubilier & Rice’s acquisitions of OCS Group and ATALIAN group. In fact, three out of the four transactions worth more than €1bn in Q3 were in the business services sector.
Meanwhile we saw a continued decrease in the number of smaller (€50m <) deals in Q3, with just 56 recorded in the LTM period compared to 138 in the LTM period to Q3 2021.
Despite difficult climates, resilience and flight to quality amongst mid-market PE deals continues, with plenty of dry powder available to deploy in good businesses with a high quality of earnings. PE funds are consistently moving at a rapid pace to secure the best assets in markets with strong tailwinds, where there is resilience in the business model and where a strong growth trajectory is evident.