South East most active region for high-growth M&A outside of London
High growth companies in the South East were involved in 139 M&A transactions in 2023, being just under half the volume of deals seen in London and just ahead of the North West.
Whilst deal volumes for the region are down compared to the previous year, all regions in England saw declines in the number of deals in the same period. After London, the South East has consistently ranked second for M&A deal volumes since 2019, with companies in the North West overtaking the South East in just three quarters throughout the period. The region certainly benefits from its proximity to London, as well as being home to a large business base. The most active county was Surrey, with high-growth companies based there participating in 25 deals.
Regional comparison of M&A deal volumes (2023)
M&A: The last few years
As a whole, high-growth company M&A deal volumes for the year 2023 were down with 139 deals, a 22% drop from 2022. While these deals don’t represent the entirety of the M&A market in the South East – for instance, buyout deals where one private equity firm sells to another are not included – the deals in scope mirror the wider UK trend.
Over the last four years, Q1 2021 saw the highest number of high-growth company M&A deals in the South East.
The 66 deals completed in the first quarter of 2021 represented the culmination of a period of sustained growth, with deal volume increasing by over three times between Q2 2020 and Q1 2021. Since reaching this peak, deal volume has been in decline, with 178 deals in 2022, further falling almost 22% to 139 deals in 2023. The last quarter of 2023 saw just 32 deals involving high-growth companies.
These trends in activity have been influenced by wider economic factors, with the 2021 peak in activity being helped by a combination of low-interest rates, strong cash balances at corporate acquirers and favourable foreign exchange rates for foreign investors and acquirers. The declines since then are at least partly related to successive interest rate rises and investors have been waiting to see where rates are likely to peak, so they can be priced in to deals.
Another key issue, which has affected 2023 deal volumes and is already affecting 2024, is the valuation gap that buyers and sellers are experiencing, resulting in longer negotiations to agree the purchase price; sellers understandably want certainty on what they will get and will push for as high a valuation as possible, but to justify those valuations, buyers are insisting on performance metrics/earn-outs.
This trend in the South East aligns with the trends observed in the rest of the UK’s high-growth ecosystem, with the number of acquisitions peaking in 2021 and falling in subsequent years.