After a strong first quarter, Jim Keeling of corporate finance advisor Corbett Keeling finds that deal activity remained robust in the second quarter as the European market enjoyed a clear pick-up in the first half compared with the same period of 2016. He also draws on the evidence of his firm’s latest survey in taking the pulse of the market.

Deal making activity in the second quarter of 2017 broadly matched the levels of the first quarter. Despite all the negative press about the start of Brexit negotiations, the concrete facts in the market place were the strengthening economic backdrop in Europe and a 33% increase in the value of deals done in the European market as a whole, relative to the first half of 2016. Encouragingly, deal making remained consistently strong both across market segments and over each of the three months in the second quarter.

Of course, the result of the General Election cast something of a shadow over the market towards the end of the period. At the very least, it appears to weaken the government’s hand for the Brexit negotiations. And Jeremy Corbyn’s rebound in popularity, while it lasts, has also made more realistic the prospect of a less business-friendly government further down the line. However, on the ground, we see plenty of market participants looking to put money to work, including overseas buyers seeking to take advantage of the weaker pound. That has to be good news for company directors planning to sell their businesses.

So what were the actual figures for deal making in the second quarter of the year?

• The smaller buy-outs sector (transactions with enterprise value of less than £150 million) continued its strong start to the year, with both the volume and the value of deals remaining very close to the figures for the first quarter. The volume was 39, fractionally down from 42, and the value was £1.4 billion, compared with £1.6 billion in the first three months of the year. That marks the strongest first half of any year since before the global financial crisis.
• The larger buy-outs sector (enterprise value of £150 million or above) also broadly matched its strong showing from the first quarter. The number of transactions held steady at nine, while their total value declined only marginally, from just over £4 billion to £3.9 billion.  
• Early stage and expansion capital deals maintained their momentum as they continued to recover from the weakness at the end of 2016. While the number of deals was down slightly (from 67 in the first quarter to 62), their value rose strongly, up from £873 million to £1.3 billion.

All equity buy-outs remain in the doldrums. There were only two all equity buy-outs in the second quarter, down from four in the first three months of the year. This was the second-highest six-month total for five years, reflecting the continued availability and attractive pricing of debt.

So, in summary, we are encouraged by the hard data for the first quarter, which reveals a very healthy level of deal making activity. But what do the survey responses tell us of the current mood in the market? Our latest survey was conducted in the aftermath of the General Election and not surprisingly reflected the resulting uncertainty over the policy outlook.

• The proportion of respondents expecting deals to increase fell to 27% for the lower value segment of the market and to 18% for the higher value segment, their lowest levels since this time last year, when market participants were struggling to digest the implications of the Brexit vote. Of course, the bar for any increase in deals is set higher, given that activity in the first half of this year has been far stronger than in the same period of 2016.
• A majority of replies indicated that the General Election would have a negative impact on M&A activity in the next six months. Only 9% expected a positive impact.

E-mail: Jim.Keeling@corbettkeeling.com