Number of interested buyers for SME companies decreased, yet M&A outlook is optimistic

The UK&I M&A market showed signs of recovery, yet is not out of the woods. Sell-side M&A transactions increased by 4% in the first half of 2023 and the average EBITDA multiple remained stable. At the same time the number of interested buyers per offered firm and the overall risk appetite among strategic buyers decreased.

These are the most important findings of the UK&I M&A monitor, the periodic survey from Dealsuite that looks into M&A market trends in the UK&I. The research was drawn from 327 M&A advisory firms that focus on companies with a revenue of £1-200mn.

Stable EBITDA multiple
Despite the challenging economic circumstances, the average EBITDA multiple for H1-2023 remained stable at 5.1. Individual sectors did note some changes, with the biggest decrease reported in the Construction & Engineering sector where the multiple dropped from 3.3 in H2-2022 to 3.0 in H1-2023. The E-commerce & Webshops and Agri & Food sector multiples increased slightly. The Software Development sector still has the highest EBITDA multiple of 8.1.

Buyers intent decreased, yet remains high
Compared to the same period last year, the average number of interested buyers per firm decreased from 9.2 to 7.5. “A steep decrease, which speaks to the challenging situation some business owners face.” notes Dealsuite CEO, Floyd Plettenberg. “Yet, the number of interested buyers still far outweighs the number of sellers. And while current market conditions influence the general appetite, we see that companies of all sizes are becoming more active in M&A fueled by mid- and long-term trends.’” Plettenberg adds.

AI transforming M&A
Artificial Intelligence (AI) solutions, such as Chat GPT, made their appearance in M&A practice. 5% of advisors currently make regular use of AI to support their M&A activities. And 34% considered using AI, but did not get to so far. 46% of the advisors expect AI to have a strong impact in the upcoming 5 years. New ways of working deepen understanding of potential deal partners in the broader ecosystem, allow for quick access to data and the streamlining of tasks and decrease geographical barriers.

Optimism for H2-2023
In line with a recovering M&A market, 75% of advisors report a stable or even increasing number of assignments in their pipeline. And while opinions were mixed looking back at the first half of 2023, 72% of advisors share an optimistic expectation for H2-2023.