Posted on 23 November 2016
Despite the poll-defying decisions on Brexit and the US election, continuing pressure in the European banking sector, and forthcoming elections in 3 or 4 European jurisdictions which could yield equally surprising results, the UK M&A market is showing remarkable resilience.
A recent quarterly survey by the UK Private Company Director publication indicates that in Q3 over 75% of respondents expect deal volumes in the sub-£100k sector to increase in the next 12 months; and that percentage is higher than in both Q1 and Q2. Even in the over-£100m sector of the market, 60% expect the volumes to grow. Asked specifically about the impact of Brexit in the next 3 months, admittedly a fairly short timescale, around 90% described the impact as neutral with the rest describing it as positive.
If all of that seems a bit too good to be true, it’s worth noting that actual M&A performance really is breaking some records at the moment; the October Experian International Monthly Review issued recently shows that whilst 515 deals were completed in October, around the current monthly average, the value of these deals was the highest for over a year. Those 515 deals included 150 deals in the “small” category, a monthly figure which seems to have gently risen in the last 12 months or so.
The report also shows the continuing upward trend this autumn in companies announcing their intention to list - 15 in October, and the largest healthcare IPO for 20 years (ConvaTec raised a massive £1.47bn). In addition, early stage private equity investments increased 12.5%, to 90, in October.
At Smith Cooper we too are optimistic about 2017; we are currently working on a range of deals across a wide variety of sectors and the 2017 pipeline is filling up nicely. We rate the M&A market as very good at present – one which has a lot of business owners wishing to exit whilst the market is lively, prices are robust, and before the real uncertainty of Brexit manifests itself in the approach to March 2018; but which simultaneously has a thriving population of trade and PE buyers who see this as a great time to invest in acquisitions.
These market conditions aren’t surprising given that our release from the EU won’t really take effect for 30 months or so and we broadly agree, certainly for those contemplating an exit, that future uncertainty and the current market conditions make this a really good time to start the process. We believe there will be an increasing incidence of partial-exit deals whereby sellers look to “ring fence” some wealth to protect against the unknown, whilst also retaining a shareholding - effectively have a two-way bet on the future.
Given the much easier access to both debt and equity capital, we also expect to see a lot of acquisitions by PE firms and an increase in development capital investments, especially by VCTs which have a lot of cash to utilise following investment rule changes. Foreign trade buyers will also continue to be attracted to UK businesses.
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