Private equity confidence boom delivers a spike in Q1 M&A deals

A spike in M&A deal volumes was witnessed in Q1 2021, with 776 completed transactions marking the highest level seen for 13 years as private equity confidence soared according to BDO’s latest PCPI / PEPI* quarterly report.

While Q4 2016 came close with 771 deals, the last time these levels were exceeded was in Q2 2008.

The rise in volumes – which represents an 8.2% increase on Q4 2020 activity levels – reflects a market continuing to catch-up on deals following last year’s lockdown hiatus, and an acceleration to complete transactions before the rumoured capital gains tax (CGT) rise.

Trade deals were up 3.4% to total 612, the highest since Q4 2018. But it was private equity which demonstrated the most significant surge in confidence, with volumes up 31.2% on Q4 2020 as 164 deals completed. The last time PE deals exceeded 150 was in Q2 2008.

Amid the bustle, deal values remained strong. Trade multiples edged up to 10.6x (Q4 10.2x), while PE multiples maintained strength at 12.3x (Q4 12.2x). The FTSE all-share also continued to soar, recording a record multiple of 16.8x (Q4 14.8x), reflecting market valuations based on current year earnings rather than the 2020 dip in performance.

Roger Buckley, M&A Partner at BDO, said: “We saw an astonishing quantity of deals completing in the first quarter of this year, which was driven by a number of factors including catch-up activity, the potential rise in CGT, and a considerable step-up in private equity investment.

“Private equity raised £55.3bn in the UK in 2020, up from £52bn the previous year. Having increased its share to 21% of all deals completed in Q1 (up from 17% in Q4), we should expect to see this foothold maintained.

“While we continue to live in uncertain times, Q1’s performance doesn’t feel like a blip. Overall, we anticipate a strong 2021-22, with deal activity levels continuing to stay strong.”

*Private Company Pricing Index / Private Equity Pricing Index