PwC Deals Index – Quarterly deal volumes up 50% year on year*

With 268 deals completing in Q1 2015, our latest Deals Index shows that mergers and acquisitions (M&A) deal volume has increased by 50% compared to Q1 2014. Continued improvement of the macroeconomic environment, increasing market confidence, an ongoing favourable debt market and the traditional deal market drivers of the US and the UK being in a relatively good shape have led to a good start to 2015.

 
Why the sharp value increases?

Deal values also rose significantly when comparing Q1 2014 with Q1 2015. This has been driven by mega deals in the upper/mid-market and an increase in the availability of capital. As a result we have seen deal values increase by 96%, indicating an uptick of top end, larger transactions which ‘richen the mix’.

Overall, the average deal size has increased by around 31% to £169m in Q1 2015 against Q1 2014. This has been driven by the increase in the average private equity (PE) deal size of around 141% to c.£235m. The average size of corporate deals has remained relatively flat at the c. £153m mark.

This indicates that there is returning PE confidence which is focused more on larger transformational acquisitions such as EVRY ASA - Apax Partners, Sky Betting and Gaming - CVC Capital Partners Limited, and National Exhibition Centre (Birmingham, UK) - LDC.

 
Market confidence is positive

In addition the deal statistics, our 2015 research shows that those we surveyed is expecting the increase in UK M&A deal activity seen in 2014 to start tailing off in 2015. However, deal activity is expected to remain fairly high over the next six months. Other highlights include:

• UK M&A activity to increase over the next 3 to 6 months – 49% of corporate and 35% of PE respondents expect deal volumes will increase over this period.
• 36% of corporate and 75% of PE respondents say they are likely to make an acquisition over the next 6 months.

In addition to rising deal confidence, a number of factors support our view that M&A activity levels will remain at current levels, markedly higher than the last few years. These include:

• Macroeconomic fundamentals – the UK economy continues to improve, although the recovery is not spread evenly across industry sectors. This is bringing increased investor optimism on the buy side from UK, European and non-European acquirers. This has only been helped by what business and the markets view as a positive result in the general election.
  
  
• Deals funding environment – debt funding continues to be generally more available and affordable as a result of the strengthening credit markets. Also PE firms have a very significant amount of ‘dry powder’ (funds) to invest.
  
  
• Oil price - We expect the oil price drop to create a number of opportunities on the restructuring side of things within the oil sector itself - the acquisition of distressed assets in oilfield services as well as transactions in other non-oil sectors.
  
  
• IPO or dual track - Continued high levels of IPO activity are expected into 2015 but, with a high proportion of dual-track processes running, we could see more transaction sales rather than floatations.
  
  
• New market entrants - We expect to see some new market entrants building a presence for themselves in the form of large public equity funds. They’ve been starting to team up with so called ‘patient capital’ to create longer term investment funds with lower return expectations.

From a sector point of view we expect:

• Financial services: in particular asset management, insurance and consumer finance will be the focus in the sector.
  
  
• Technology, Media & Telecoms (TMT): hosting services and cyber are of particular interest in 2015.
  
  
• Oil and gas: we expect to see some tension caused by the oil price drop where some companies that service the sector might find themselves on the wrong side of capital expenditure cuts. This should create a number of opportunities on the restructuring side of things within the oil sector itself, the acquisition of distressed assets in oilfield services as well as transactions in other non-oil sectors.
  
  
• Retail, consumer and leisure: we expect retail to remain strong throughout the year but we will also continue to see an increase in leisure and travel deals.

 
How does this affect your deals strategy for the rest of 2015? Share your thoughts in the comments box below or schedule a meeting to discuss your situation in confidence.  

Get a snapshot of our Deals Index infographic here.
*Global deals over £25m involving a UK asset or acquirer
PwC survey sample: 103 c-suite Private Equity and Corporate respondents
Sources: Thomson Reuters, Preqin and PwC analysis as at 31 March 2015