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Resilience in the mid-market drives a strong M&A outlook

With the series of shocks impacting the national and global economy over the last 2-3 years, business owners could be forgiven for assuming that the macroeconomic pressures would feed through to a significantly more challenging M&A environment, and that now would not be a good time to embark on a transaction of any form.

However, the data on recent M&A transactions and a review of Global M&A activity by Baker Tilly International, produced in conjunction with Mergermarket suggests a more optimistic view, with significant opportunities continuing to exist and evidence that businesses are continuing to utilise targeted M&A as a key part of their growth strategy.

Recent deal volumes have been robust in both UK and global markets, remaining significantly above pre pandemic levels. This has primarily been driven by robust activity levels in the mid-market i.e. those in the £15m-£500m range.

There has been a reduction in overall deal values in 2022, however this reduction is focused on a drop off in activity in the big ticket, large cap element of the market from the record levels enjoyed in FY21 (largely reflecting a ‘bounceback’ effect from the Covid disruptions of 2020).

The survey has identified the underlying continued strength in the mid-market, with deal volumes underpinned by strong business and economic fundamentals which are expected to continue into the short and medium term.

Why are mid-market transaction levels more resilient?

The resilience of the mid-market and larger end of the small cap market stems from the following:

  • Strong availability of private equity (“PE”) funding. PE funds need to invest and they continue to have significant “dry powder” to deploy. PE’s record 25% share of deal volumes in 2022 is expected to increase further driven by a strong appetite for mid-market transactions, both through platform acquisitions, and bolt on acquisitions for portfolio businesses.
  • More caution and a reduction in both the supply of, and demand for funding in relation to large cap transactions. This reflects more caution regarding large cap transactions from both acquirors and funders, leading to a greater focus on mid-market opportunities.
  • Reduced regulatory risk. Typically, transactions in the mid-market involve business combinations which are below the thresholds for competition regulatory review and consent.

Which sectors are expected to see more transaction volumes?

The Telecommunications, Media and Technology (“TMT”) sector has performed very strongly for several years. There are no signs that investor / acquirer appetite is softening. In fact, a case can be made that volumes can be expected to increase. A challenge for many businesses remains their legacy technology and M&A remains one of the fastest options to restructure and reposition, provided the right target fit can be identified.

More traditional industries are expected to see a more challenging outlook, particularly commercial real estate due to the changing nature of work, and an ongoing need to divest of older style buildings with high energy requirements impacting on both running costs and ESG credentials.

Sectors heavily exposed to high fuel costs and consumer discretionary spend are also expected to be more impacted by the current macro-economic pressures. However, consolidation strategies may generate a level of deal activity for some in these sectors with opportunistic purchases a real prospect.

Are cross border transactions seeing a similar trend?

Broadly, yes. Cross border M&A activity (foreign buyers of UK companies) has increased and is expected to continue to do so. This isn’t quite a ‘wave’ phenomenon; the fundamentals of a business acquisition still need to stack up for a buyer, whether foreign or not. But where they do M&A activity is expected to follow the above sectoral trends, with geographic expansion, access to technology and skilled labour driving cross border transactions.


Despite an increasingly challenging macro-economic environment, deal volumes are expected to remain robust, with significant opportunities for businesses to accelerate growth through strategic M&A.

As ever, for those businesses’ owners seeking a transaction, preparation is key and in a more challenging macro-economic environment business owners will need to clearly articulate the following:

  • A clear pricing strategy and routes to market.
  • Know who your key customers are, and why they buy from you, what is your USP?
  • Understanding of your recurring revenues, both contracted and repeat business.
  • Have a robust business plan with clear historic and forecast profitability with a ‘bridge’ between the two.
  • Manage supply chain exposures – mitigate the reliance on key suppliers and the consequent exposure to margin deterioration through supplier pricing power.
  • Compliance risks- ensure any potential areas are fully addressed so as to minimise the risk profile of your business i.e. tax compliance / use of contractors, IR35 compliance.
  • Your ESG strategy – this has moved beyond a ‘nice to have’ to a ‘must have’. ESG is an increasing area of focus particularly for PE and larger corporates. Your strategy must be considered and for the best placed businesses, it will have evolved far beyond just window dressing.

The corporate finance team at MHA are focused on advising businesses on all aspects of M&A and corporate finance with a focus on the preparation for and delivery of, transactions in the mid-market. If you are actively considering a transaction or would like to discuss the above further, please do not hesitate to get in touch.