BGF’s David Bellis: “Buy and Build” strategy gains traction amid improved market sentiment

Following a challenging few years of high interest rates and inflation, there’s a sense of increasing stability in the business landscape that has been lacking. This should drive a positive outlook for UK&I M&A in 2025.

“Managers and shareholders have had significant challenges to overcome in recent years and have been focusing on navigating those, but have started to turn their attention to fundraising and transactions again.

This excerpt from our 2025 UK&I M&A Outlook Report, which features insights from 8 top UK&I dealmakers, explores David's perspective on the factors shaping M&A activity in the UK&I market. David discusses the growth capital equity fund, driving factors increasing M&A and how valuation gaps have contracted.

A return to growth

We’ve definitely seen activity return and increase across 2024,” says BGF Investor, David Bellis. The growth capital equity fund has invested in over 600 businesses around the UK, across all sectors, making it one of the most active equity investors in Europe.

“Deployment of capital has been up year-on-year and the pipeline looks strong for next year,” says David.

“Buyouts are exposed to the cost of debt, which has gone up significantly over the last couple of years, which may be a driver of the reduced buyout volumes. There’s dry powder out there so I would expect there to be greater deal volume over the next 12 to 18 months,” he adds, attributing muted deal activity to the end of COVID stimulus, which most businesses have used up now.

Driving factors to increase M&A activity 

“That will stimulate M&A. We’re having more conversations about buy-and-build opportunities, which is another indicator that confidence is coming back. These deals are attractive to an investor because they can be an efficient way to create equity value,” David says.

In terms of deal process management, BGF is using artificial intelligence to help with research and David says AI is increasingly part of the due diligence process.

“We want due diligence to be efficient. But we need to do sufficient work to properly understand the risks and ensure the risk/reward of the investment opportunity stacks up. Processes have taken a bit longer over the last 12 months as investors or buyers have taken more time appraising the risks. Cyber is getting more attention, too, as hacks become more prevalent, and it’s important that businesses have appropriate insurance in place to mitigate this risk,” says David.

ESG due diligence is also getting greater focus. “We are increasingly seeing ESG performance being reflected in valuations. In a post-COVID world, that social piece of ESG is increasingly important,” he adds.

Bridging the valuation gap

As valuation gaps have contracted over the past 22 months as market conditions have normalised, sellers’ and investors’ expectations have also converged.

“We use structuring mechanisms like minimum returns and participating preference shares to help bridge valuation gaps – providing greater downside protection to the investor, but keeping more of the upside in the hands of current shareholders and management teams. It means we are able to give a higher valuation, with downside protection in return,” says David. 

Lessons for investors

His lesson for other investors is to not to get too high or too low. “There are good days, bad days and stressful periods. So it’s important not to get too high with the highs, or let the lows get you too low. Also, it’s important to build strong relationships and enjoy doing so, because that’s ultimately what matters."

Looking ahead

David’s insights offer valuable perspectives on the M&A landscape in the UK&I. To gain a deeper understanding of the key trends and predictions shaping the market, we encourage you to download the full M&A Outlook Report. This comprehensive report features in-depth analysis to equip you with the knowledge you need of the current deal environment in the United Kingdom and Ireland to be able to capitalise on emerging opportunities.