After what had been a relatively quiet time for Mergers and Acquisitions (M&A) activity in the UK during 2022, the start of this year has seemed to have turned a corner.

It now appears that the market is moving back to the buoyant levels of M&A activity that were achieved in 2021.

The UK market, especially the mid and small cap space, is a hive of activity, as private equity and other businesses based in the UK and outside, are looking to utilise the cheap valuations currently on offer to purchase some great businesses at rock bottom prices.

There are several reasons why this is occurring, with the main one being how inexpensive the UK market is compared to other equity markets globally. On average, UK equities are as cheap as they have been over the past decade, when compared with other equity markets.

The fall in Sterling over the past few years has made businesses far cheaper for foreign investors too, and now the political situation is improving, it means the backdrop for businesses to work in is far better as well.

In the past week alone, Dechra pharmaceuticals and Network international have disclosed bids for their businesses. This comes after other offers had been placed for Dignity, Hyve Group and John Wood Group since the turn of the year, with bolt on acquisitions and investments being made by some of the largest UK firms as well, including Tesco’s & BP.

As we have highlighted in previous commentaries, UK equities remain an overweight for our portfolios. We continue to invest in funds based across the market cap spectrum that don’t just invest in large cap businesses residing in the FTSE 100, but also the mid cap FTSE 250 and UK small caps as well.

The M&A activity that is occurring now and that will continue to occur, will benefit these investments, especially in the small and mid-cap space where the activity is predicted to be higher. In a recent survey undertaken by Numis, they found that 90% of FTSE 250 directors thought UK businesses were vulnerable to takeovers and 97% believe there will be increased competition for UK businesses and assets.

Other investors may continue to ignore the UK market and the excellent firms that reside here. However, as long as Private Equity and other businesses continue to do their homework, these cheap companies will be snapped up quickly and in doing so, we will happily collect the rewards this should provide our investments over time.