Investment trends in early stage businesses
Fast growing, entrepreneurial businesses can take a range of journeys to reach acquisition. Some are boot-strapped; some win innovation grants; and some receive angel/PE/VC investment.
Investment patterns showed that of the 139 high-growth companies acquired in 2023 in the South East, 33 have raised equity investment since 2013. Through a total of 107 fundraisings over the last decade, £236m has been invested into these companies, with an average for each company of £7m.
The top fund manager investing in these companies is Mercia Asset Management, which has made 14 investments in these companies. Additional top fund managers in these firms are Oxford Technology with eight investments, as well as SyndicateRoom which has made seven.
The vast majority of M&A acquisitions of high growth businesses were completed by corporate acquirers, with trade sales accounting for 93.5% of M&A transactions in the South East and professional investors (typically private equity funds) contributing to the remaining 6.47%. These proportions of buyer types broadly align with what we see for acquisitions of startups and scaleups across the whole of the UK. These deals don’t represent the entirety of the M&A market in the South East – for instance, deals where one private equity firm sells to another are not included. However, these proportions reflect the likelihood of entrepreneurs of early stage businesses exiting directly to private equity; in the wider M&A landscape private equity will be involved in a higher proportion of more mature and well established businesses.
Breakdown of buyer types in M&A deals in the South East
"A lot of cross-border M&A involves US private equity backed businesses, which have been very active and it should be highlighted that since the financial crash in 2008, private equity has been a big contributor to keeping M&A deal flows moving. Private equity investments generate M&A; the initial platform acquisition, the bolt on acquisitions and then the exit and, similarly, with private equity firms operating VC funds, each growth investment will result in at least one M&A deal, if not more, going forward. So, while our data shows a lower level of private equity involvement in early stage M&A deals, private equity firms are more plugged in to the regional markets than they have been before. What do we think 2024 will bring? PE firms have been announcing successful fund raises and cash rich businesses are ready to seize on opportunities, so assuming the geo political situation doesn’t deteriorate, we can be cautiously optimistic.”
Salim Somjee, Partner, Corporate