Entrepreneurs eye the early exits as M&A activity for young companies rises

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Founders of young companies are increasingly selling or merging their firms, according to the research (Source: Getty)

Entrepreneurial businesses are consolidating at the fastest pace in at least six years as mergers and acquisitions (M&A) activity booms, according to research to be published today.

The number of M&A deals where businesses less than five years old were the target has jumped 28 per cent, from 395 last year to 505 deals this year, according to a report by Barclays bank.

The number of M&A deals remains 50 per cent higher than 2011, the first year of the report, when just 335 deals were completed.

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Yet the number of high-growth companies, defined by growing revenues by a third over the previous three years, has fallen steeply, hitting a third lower than the peak in 2013.

The decline in high-growth companies could be down to more early exits from owners or a lack of venture capital funding, Barclays said.

The number of companies that have received seed, start up or early stage venture capital is its lowest since 2011, although the average size of the bets from investors has grown by 70 per cent year-on-year to reach £1.7bn, Barclays said.

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While M&A activity among younger companies can be a double-edged sword: while an early exit can be appealing for an entrepreneurial founder, it can also stop firms from pushing on to bigger growth, warned Andy Houston, head of Barclays Wealth Management.

However, he added: “It’s encouraging to see an increase in the number of new companies being created. Furthermore, the strong uplift in the number of young companies being bought shows that UK start-ups are seen to have real value.”

Some 646,000 new businesses were created in 2016, eight per cent more than in 2015, while the number of workers in entrepreneurial businesses rose by 24 per cent over the last year.

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