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Delay in deals?

 

Posted on 15 December 2016

At Smith Cooper we complete circa 25 deals a year which provides us with some insight into the state of the Midlands M&A market.   One of the key themes we have seen across each of our offices is that deals seem to be taking longer to complete and there appears to be no tangible reason for any delay.  The factors that normally result in delay are not influencing our transactions:

Factors that normally cause delay

Our current experience

If the M&A market was weak

 

A weak M&A market means it is harder to find purchasers at the right price and even if you do it is tougher to lead them through the process. 

The current M&A market remains buoyant with purchasers finding themselves in competitive processes which is encouraging them to act faster.     

 

If debt availability was low

 

If debt is difficult to obtain it means those funders that have cash to deploy will be more cautious. 

Debt availability remains strong with bank and alternative debt funders having liquidity to lend and seeking ways to deploy money. 

 

If trading results were poor

 

Poor trading often results in purchasers re-assessing a transaction which causes delays whilst deals are renegotiated and trading reassessed. 

Trading can be business and sector specific, the transactions we are involved in are not currently being impacted by current trading.  The general economy has remained resilient to some of the current headwinds.  

 

If buyer appetite is low

 

Low buyer appetite is typically synonymous with a weak M&A market. 

Currently buyer appetite is strong and purchasers have the firepower to make acquisitions.  Our view is that both trade and equity purchasers are seeking to complete transactions swiftly.

 

As such, it is not these market factors that are causing any delay, quite the opposite.  

On a recent project I found the process was delayed 2 months longer that it originally should have. This was on a transaction that had no real deal issues or complexity. It was very frustrating for all sides – for some reason it was just took longer to process the paperwork.  My conclusion on what is causing delays is available bandwidth.   In a post Brexit environment, I believe that companies are being cautious on recruitment – under investing rather than over investing.   This combined with a strong M&A market is causing pressure across the sector resulting in slower progress during the execution phase of a project. 

If you are a Vendor and thinking of selling it is still a very good time to be selling – just be aware that deals are taking that little bit longer to complete than normal.  Start the planning early.

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