BDO’s PCPI / PEPI* quarterly report shows that sentiment was overwhelmingly positive at the beginning of the year, with trade deal volumes resurging by almost 20% to total 506 deals, reflecting pent up demand in the market. This buoyancy was recorded despite volumes in the Private Equity (PE) market tapering off somewhat to 76 deals, the lowest quarter for two years.
Deal values in Q1 also maintained a strong profile before COVID-19 hit, with trade multiples increasing from 9.5x to 10.1x and PE multiples fluctuating from 12.2x to 11.8x.
The decline in the FTSE all share to 10.7x reflects the sharp market contraction at the end of the quarter as the UK-wide lockdown was imposed due to the coronavirus pandemic. The lockdown was a compelling indicator of a decline in M&A activity over the coming months, as businesses divert attention away from deals to focus on more immediate priorities.
Roger Buckley, M&A Partner at BDO, commented: “Pre-lockdown, we saw a healthy M&A market in the UK, with much of the quarter’s deal activity preceding the impact of COVID-19. We expect to see a significantly reduced volume of M&A activity in Q2.
“Deal completions in Q2 are likely to be centred on businesses which are trading in sectors less impacted by COVID-19, such as technology, pharma and parts of the healthcare sector. Whilst it is too early to say what the M&A market will look like in the second half of 2020, we anticipate a significant variation in both M&A activity and value impact, by sector and sub-sector. The hardest hit sectors may not see a resumption of M&A activity until 2021.”
*Private Company Pricing Index / Private Equity Pricing Index
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