Brexit having impact on M&A activity in AIM market?

Brexit having impact on M&A activity in AIM market?

UHY Hacker Young presents the case that, although Brexit uncertainty is definitely having an impact, Private Equity buyers have “held firm”

UHY Hacker Young has recently reported that Merger and Acquisition (M&A) activity on the Alternative Investment Market (AIM) has dropped by 28% this year.

In 2016-17, 29 M&A deals were recorded in the UK. This year, however, this has dropped to 21 deals, and Brexit uncertainty has been cited as one of the main reasons that companies have been “shelving plans,” UHY Hacker Young has revealed.

The market has dropped by £2.44bn in 12 months; 2016-17 brought in £3.74bn, but in 2017-18 it has numbered at £1.3bn.

The report stated: “The overall fall in M&A activity may also partly reflect how international buyers of AIM companies are waiting for opportunities at a discount post-Brexit, rather than acting now. Depending on the final Brexit deal, the value of the pound may fall further, which could lead to a drop in the share prices.”

Laurence Sacker, managing partner at UHY Hacker Young, said: “It has been clear for some time now that, as we head towards crunch time in Brexit negotiations, investors are adopting a ‘wait and see’ approach before making any commitment.”

However, despite this 28% drop in M&A activity, Private Equity buyers of AIM companies seem to have held their nerve in the face of this uncertainty. The value of PE-backed transactions has fallen only by 8% to £884m from £957m over the same 12-month period. UHY Hacker Young has emphasised that this reflects how Private Equity buyers still see value in AIM companies.

Sacker continued that “the value of transactions involving Private Equity buyers has held firm, which is a real vote of confidence in the quality of AIM companies.”

AIM companies have remained attractive acquisition targets, even if deals have decreased in the past year. Until then, the past three years have actually seen an increase in M&A deals involving AIM companies.

UHY Hacker Young has identified three key reasons why this is the case:

  • AIM companies have had to comply with new corporate governance requirements since September 2018. This has increased investor confidence in management structures.
  • The general quality of AIM companies has also increased. There is a greater number of financing options available to small businesses.
  • Companies are listing on AIM, as they find it easier to scale up operations, due to programmes such as LSE’s ‘ELITE’.

Sacker concluded: “A potential acquirer could find themselves in difficulty if Brexit dents revenues to the extent that a company cannot pay down its debt. This has led to the notable pause in M&A activity on AIM over the last year, compared to the bullish sentiment in previous years.

“This time last year, Brexit still seemed a long way off and companies were prepared to act on any takeover plans. However, now that Brexit is less than six months away, companies are being more cautious in their approach.”

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