The past year has been one of the most challenging for UK M&A since the 2008 global financial crisis, seeing double-digit declines in UK deal volume and value in 2023. M&A markets in the South of England have been no exception, with Experian data showing a steep 55% slide in year-on-year deal value for the region. 

Proximity to the London market has supported relatively high volumes of £1bn-plus deals in the South in previous years, boosting overall deal value. But, with big-ticket deals on hold in the face of rising interest rates, overall deal value across the region has contracted steeply in the past 12 months. According to Experian there were only two deals worth more than £1bn in the South of England last year – down from nine such transactions in 2022.

Flexible market

The major centres of commerce and business across the south coast are found in Bournemouth, Southampton, Portsmouth and Brighton. Inland, the region’s deals market is serviced from Guildford and Reading, too. Its deals market is flexible – not only is it reliant on megadeals to sustain the investor and advisory ecosystem, it is also well known as a rich pool for fast-growing companies driven by owner-managers and entrepreneurs.

“There are a lot of really nice businesses all along the south coast that are growing and looking for investment,” says Philippa Robinson, corporate finance director at Southampton-based Quantuma.

In addition, the region’s economy is diverse and so not tethered to the ups and downs of any one sector’s fortunes. 

“The region’s proximity to the coast has supported the development of strong logistics and leisure industries, and we have also seen really exciting opportunities in telecoms, technology and tech-enabled services,” says Jonathan Caswell, LDC’s origination director, who covers the South of England. “There is a really broad range of companies straddling a number of sectors across the region.”

A diverse economy and steady stream of transaction flow in the mid- and lower-mid market have helped limit the decline in deal volume in the region, despite the dip in overall deal value. 

Family affairs

“The mid-market is very strong across the South,” says Helen O’Kane, Southampton-based deal advisory partner at BDO. “There are numerous family-owned businesses that have passed down through several generations. Many entrepreneurs have moved out of London and are seeking a slightly different lifestyle, but are still ambitious to grow businesses and develop opportunities. There are always companies in the region that are growing and developing.”

Deal volumes in the South only fell 9% year on year in 2023, with 1,116 transactions recorded by Experian. The region remains the second most active in the UK (with only London delivering more deals) and transaction volumes still sit at the higher end of averages for the past 10 years. 

The market’s ability to provide dealmakers with a mix of large and mid-cap deal opportunities has helped the South to develop a healthy base of regular corporate and private equity dealmakers.

A number of large companies are based in the region, including Vodafone in Newbury, B&Q in Southampton and Pfizer in Sandwich, and they sustain steady corporate M&A activity; corporate M&A accounted for more than 70% of deal flow in the region last year. 

Private equity presence in the region is also strong. Last November, Permira completed its £703m acquisition of Ergomed, the Guildford-based pharmaceuticals contract research organisation (CRO) platform. And in July, IK Partners completed its fourth platform investment in the UK with the take-private of the Hastings-based radiology provider Medica Group.

Local expertise

Good transport infrastructure into the South from London has fostered strong ties between the region and the capital, allowing advisers and dealmakers to cover the region in different ways.

Large investment banks, accounting firms and private equity firms have all been able to build deal flow across the South from their London head offices, especially for transactions at the larger end of the scale where sector expertise and big sector teams come into play.

There are also, however, active, locally-based corporate finance hubs clustered around key centres across the region. Hotspots include Reading and the Thames Valley, Southampton and the Solent, the M23 corridor through Gatwick and down to Brighton, and East Sussex and Kent.

Advisers with local offices across these hubs can see distinct advantages to having boots on the ground, especially when it comes to those mid- and lower-mid market transactions.

“People value the ability to have a face-to-face meeting at relatively short notice, and if you are embedded in the community, it does put you ahead of the curve when deals come to market. A physical presence also gives us a market presence and a competitive advantage,” says BDO’s corporate finance partner Jeff Harris, who is based in the South East across Gatwick and Guildford.

And, Quantuma’s Robinson adds: “The region is closely aligned with London, but having worked in the capital I would say the markets are quite different. If you work on a deal in London, teams are pulled in from everywhere and nobody minds too much, but in my patch in Southampton you are at an advantage when you are embedded in the community. 

“This is especially true when you are working with owner-managers who value personal relationships. So much deal flow comes through small accountancy and law firms that don’t have corporate finance teams. It is difficult to parachute in and tap into these networks.”

Advisers with local offices often lever the best of both worlds, where they can build personal relationships with local businesses and entrepreneurs, but also have the option to pull in large sector teams from the London market when that is required.

“FRP Advisory has excellent specialist sector teams that we can call on, especially on bigger transactions,” says Brighton-based FRP Advisory corporate finance partner Adrian Alexander, “but for the SME end of the lower mid-market the focus is much more relationship driven. For an owner-manager the priority is to find an adviser that they can get on with, who pays close attention to their business and who can deliver on all aspects of the deal. This is when a local presence really comes into its own.”

Private equity firms have also recognised the value of dedicating resources to service the region – the BGF, YFM, Foresight and Rockpool all have a dedicated local presence. There is a vibrant corporate finance community with a busy calendar of networking events in the region, and firms that do invest in local relationships and offices have seen good results.

LDC’s Thames Valley office in Reading, for example, has been among the firm’s most active. Since joining LDC in 2001, Jonathan Caswell has originated more than 20 investments across the Thames Valley and the South. “Our model and our resource commitment on the ground is absolutely to ensure we are represented within the region and that we’re out there meeting businesses, as forming true partnerships is central to everything we do,” he says. “We are working hard in the region to make sure that we are meeting companies directly, building relationships and supporting the region and its corporate finance community.”

And, he adds: “Dealmakers have had success in the South when operating out of London, but we also have a deep conviction that this is a region that will reward you when you put the effort in to build direct relationships early and understand what company founders want. We know what businesses are doing here, and that matters.”