Article:

M&A makes a strong start in 2022

19 May 2022

Katharine Byrne, Head of Corporate Finance recently contributed to the latest edition of BDO Horizons to report of the recent M&A activity in the UK and Ireland.

With rising inflation and the war in Ukraine, it is going to be hard to maintain 2021’s boom in M&A activity but global private equity and international trade buyers have been busy completing deals to date as they continue to seek investment opportunities in the UK & Ireland. Q1 2022 saw a strong start to the year with 153 deals announced with an aggregate value of USD 15.7bn. This represented an increase of 22% in deal volume from the final quarter of 2021 but a 15% decline in volume compared to last year’s record-breaking first quarter. Private equity buyers remained active in the region with one of three transactions being PE-led. However, the total aggregate value in Q1 2022 was USD 4.1bn with fewer large transactions reported as funds looked to spread the risk and became more cautious on valuations when trying to assess the impact of inflation and rising interest rates.

Despite the uncertainty of Omicron and the unfolding of the Ukraine crisis, the appetite of trade buyers remained strong with 102 reported deals totalling USD 11.6bn. Some significant transactions included Telefonica’s USD 220m acquisition of Incremental Group Ltd, a UK-based provider of IT services and Savvy Gaming Group’s acquisition of FACEIT for USD 500m as they merged it with ESL Gaming to create a ‘global esports ecosystem’.

Key sectors and deals

TMT remained the most active sector, accounting for nearly 40% of all transactions in the quarter. The technology sector remains a hotbed of activity from start-up companies through to global mega-deals. In Ireland, another two tech start-ups achieved unicorn status with food ordering platform Flipdish receiving a USD 100m investment from Tencent Holdings at a valuation of over USD 1.25bn, while Wayflyer, the fintech company engaged with providing revenue-based financing to e-commerce brands, attracted USD 150m institutional funding at a market value of USD 1.6bn. Similarly in the UK, eight of the Top 20 transactions were in the TMT sector including Ontario Teachers Pension Plan investing USD 265m into the consumer credit platform Lendable at a valuation of £3.5bn and another unicorn fintech company GoCardless raising USD 312m at a valuation of USD 2.1bn.

Business Services was the second most active sector with 22 transactions reported, including the acquisition of Autorama UK by Autotrader Group plc for USD 252m. M&A activity in Financial Services remained steady with 17 transactions including Exponent’s sale of Enra Group, a provider of lending and broking short term bridge mortgages services, to US hedge fund Elliot Management for USD 465m and Pollen Street Capital’s sale of 1st Stop Group, a local brokerage agency providing consumer loans, to Tandem Money for a similar value.

The Industrials & Chemicals sector experienced an uplift in activity with 20 transactions reported in the quarter. Most of these deals were cross-border as trade buyers turned to M&A to achieve growth and develop their global presence. Finally, the Pharma, Medical & Biotech sector remained resilient with 10 transactions, including the notable SPAC deal involving the USD 412m merger of psychedelic science leader Eleusis with Silver Spike Acquisition Corp.

Despite a lot of interest in the Renewable Energy sector there is still a limited amount of reported M&A activity. There were only five mid-market transactions across the Energy sector during the first quarter, of which only two featured in the Top 20 transactions – these were Quantum Energy Partners’ USD 400m investment into Trident Energy mgmt. and Endeavour Energy’s acquisition of the UK upstream portfolio from MOL Hungarian Gas & Oil for USD 305m. We expect deal activity in this sector to increase as investment continues to move away from fossil fuels towards clean energy companies.

Looking ahead

At the time of writing we are faced with the horrors of war, significant inflation forecasts and rising interest rates. Both the UK Chancellor and Ireland’s Finance Minister have revised the GDP growth forecasts downwards for this year, citing the conflict in the Ukraine as the reason. Despite this, the UK is still projected to grow by 3.2% and Ireland by 4.8%.

At this point the M&A pipeline remains active with 548 deals in the pipeline as sellers continue to look to avail of increased valuations, while buyers seek to deploy capital. As expected, TMT is the hottest area of activity with 27% of all rumoured transactions, although this is often understated when compared to the percentage of completed transactions. It is interesting to note that the Consumer sector represents over 14% of pipeline transactions. This is likely to be driven by pent-up demand post-COVID. However, with inflation expected to average 7.4% this year, (i.e. it could be higher for several months) it is possible that many Consumer deals will have to be put on ice again until we get more certainty on the longer-term impact on consumer spending.

We are also likely to see a rise in distressed opportunities following the removal of Government pandemic support schemes combined with the impact of wage inflation and supply chain disruption. Overall, the UK & Ireland continue to remain of significant interest for international buyers which will drive more cross-border transactions in the TMT, Business and Financial Services sectors, particularly given the resilience of the economies as shown to date over the last three years.


Content adapted from BDO Horizons 2022 – Issue 2.