Out West

The South West and Wales felt the force of the macroeconomic headwinds that put the brakes on wider UK deal activity, but after a difficult period, M&A has sprung back to life.

According to figures from Experian, South West M&A deal value for the first half of 2024 climbed to £12.2bn, a more than six-fold increase on deal value for the corresponding period in 2023. In Wales, meanwhile, deal activity for the same period was up more than nine-fold year-on-year at £2.7bn.

The rise in deal value has given welcome relief to M&A stakeholders in the two regions, where 2023 final-year deal value fell 32% in the South West and 48% in Wales, as both deal markets felt the impact of rising inflation and climbing interest rates.

“At the back end of 2023 we saw a noticeable pick-up in momentum after what had been a relatively quiet period for deals,” says Cardiff-based Gary Partridge, who has been a partner at FRP Corporate Finance since he sold his own advisory business – Lexington Corporate Finance – to FRP in July 2024. “Several deals that were put on hold mid-flight because of market uncertainty are back on the radar, and with a stabilising outlook for interest rates, vendors are more comfortable about bringing assets to market, too.”

The drive to do deals in 2024 was also spurred on by the UK election cycle and the first Budget of the new Labour government, which was announced on 30 October 2024.

“There was a bit of a fallow period between the election announcement and the usual summer slowdown in August, but since then we have seen urgency come back into the market as vendors and buyers move to wrap up deals that were already in train before the Budget,” says Scott Hill, a corporate finance adviser in the Exeter office of accounting and professional services firm Old Mill.

Scale and sector spread

The uptick in overall deal value has come despite a 15% dip in M&A volumes in the South West and a 29% drop in Wales, and has showcased the region’s capacity to develop companies of scale across a broad mix of sectors.

High-profile big-money deals during the past year have included the £5.4bn take-private bid for Bristol-based financial services company Hargreaves Lansdown (see box); Apax Partners’ £1.25bn deal for Bristol payroll and HR software company Zellis; the £2.5bn acquisition of Welsh housebuilder Redrow by Barratt; and US buyer GXO’s £762m move for Chippenham logistics company Wincanton.

“One of the most attractive attributes of the deal market across the South West and Wales is the diverse mix of active sectors,” says Ned Dorbin, head of the South West and Wales for the Business Growth Fund (BGF). “Cardiff and Bristol have developed into active technology and fintech hubs, but you also see strong food and drink businesses in Devon and Cornwall, while Wales retains an active manufacturing base, as well as offering opportunities in energy transition, as industry shifts from steel and coal.”

Local knowledge

Even though the variety of deals on offer in the South West and Wales regularly draws in UK bidders and advisers from outside the region, this remains a market where deals involving founder and family-managed businesses are the bedrock of transaction flow, and local presence and domestic networks are still key differentiators for vendors.

“The South West and Wales are not on the dark side of the moon, and when deals with enterprise values north of £50m come to market, bidders and advisers will certainly parachute in and do deals,” FRP’s Partridge says. “Most deals are below the £50m threshold, however, and will more than likely involve assets that are owner-managed and where relationships matter. It is not as easy to fly in and expect to be successful in that segment of the market.”

Kathryn Mansell, a corporate finance associate director at Old Mill, adds: “During this period of slower UK M&A activity, we have seen the large London-based private equity firms venturing into the South West more often. This is an outward-looking region, but there are nuances to operating successfully. 

“The market is not as large as others, but dealmakers are usually surprised at how much is going on. There is an active community of advisers covering the region, so the infrastructure and expertise is in place to get deals over the line. This community is sophisticated and well connected.”

Dorbin says that the BGF’s local office network, which includes offices in Bristol and Cardiff, has been a key differentiator for the firm.

“The easy access to domestic firms, management teams and entrepreneurs that a local presence gives you is not to be underestimated. When bidders from outside the region come to meet prospective deal targets, we would almost always have already met them and built up a picture of the company through the informal due diligence that builds up when you are engaged with a local market day to day,” Dorbin says. “The South West is an open market, but it is also relationship driven. As a local player we are a known quantity to management teams and advisers, who know that we can be trusted to deliver on what we say we will do.”

Indeed, relationships remain so important to local companies and owner-managers that many advisers will typically focus on sub-regions within the South West market.

“If you aren’t familiar with the characteristics of the region, it is easy to assume that M&A across the South West is run out of Bristol or Cardiff, but that is not the case,” says Hill. “Corporate finance advisers are quite granular and strategic about how they cover the region. Bristol is its own ecosystem, Cardiff is very much its own ecosystem and the Devon, Cornwall, Somerset area, where we focus, is very much its own ecosystem.”

Dorbin adds: “There are specific dynamics to the corporate finance community here and unless you take the time to get out into the community, you can mistakenly see the region as one homogeneous market.”

Despite the presence of a sophisticated advisory network covering the region, the South West and Wales still only accounts for a fraction of overall UK deal activity. According to Experian, Welsh firms only contributed to 1.8% of overall UK deal value, while firms in the South West only represented 7.8% of total UK deal value.

There is a long runway for the M&A market in the region to grow, and advisers and dealmakers point to the important role regionally focused funds and firms are playing.

Helping hands

The British Business Bank, for example, has set up the South West Investment Fund (SWIF), which will provide a £200m commitment of new funding for smaller business across the region. The SWIF, which is managed for the British Business Bank by managers with regional operations, will offer a range of financing options to companies in the region, ranging from loans in the £25,000 to £2m range, and equity investment of up to £5m.

In Wales, meanwhile, the government- owned Development Bank of Wales (DBW) manages a family of funds worth around £1.9bn, covering a variety of funding streams, ranging from micro-loans and green loans to technology, equity, tourism and real estate funds. The DBW invests exclusively in Wales and in addition to meeting commercial objectives, it also stimulates local economies across Wales and driving economic growth across the country, and has become a key player in building the Welsh M&A and corporate finance community (see Developing Wales, right).

With pools of capital supporting businesses in the region, coupled with a revival in broader M&A markets across the UK, M&A in the South West and Wales is well positioned to ride the tailwinds from slowing inflation and falling interest rates, and to build on the rally in regional deal value seen in the first half of 2024.