Member Article

Competition for quality drives deal volume and pricing

The total number of trade acquisitions for Q2 2012 is up 17.5% on the same period last year, and private deal volumes were up 21.2% over the last 12 months.

The figures are according to accountancy and business advisory firm BDO LLP’s Private Companies Price Index (PCPI) and Private Equity Price Index (PEPI) for Q2 2012.

Peter Hemington, M&A Partner, BDO LLP commented: “We are seeing relative stability in the volume of private company deals and deal pricing has been steadily rising.

“As organic growth remains challenging in difficult economic conditions, companies that have conserved cash during the downturn are increasingly focusing on acquisitive growth in order to satisfy shareholders demands for higher returns on capital. With a finite pool of high quality targets there is significant upward pressure on valuation metrics.”

The total number of private equity acquisitions was up 26.5% year-on-year from 68 to 86, and over the last 12 months to Q2 2012, private equity deal volumes were up 11.6% on the previous 12 month period.

Mr Hemington continued: “Private Equity houses have been under intense pressure to invest funds raised since 2007 and are now facing the additional pressure of increased competition from private companies. With a scarcity of suitable high growth companies available in the current economic climate for private equity to back, and the increasing competition arising from trade buyers returning to acquisitions, pricing has been pushed up considerably over the last 12 months.

“Despite continued economic uncertainty, the deal environment appears to be more resilient as companies increasingly look to make quality acquisitions to drive growth and, in certain sectors, in response to shifting technological trends.

“Pricing has steadily increased for private company transactions and remained relatively high for private equity deals compared to the previous four years. This is in marked contrast to the FTSE Non-Financials index where pricing has fallen over the comparable period and is more indicative of the wider economic backdrop. This also reflects that the deals that are completing are for higher quality companies.”

This was posted in Bdaily's Members' News section by Tom Keighley .