Round table report: Taking the pulse of the M&A market
The deals market has been “slightly towards the challenging end” of the spectrum over the last 12 months – that was the message from our latest round table, sponsored by FRP Corporate Finance, and held at the offices of Eden PR in Nottingham city centre.
However, said Harry Walker, partner at FRP Corporate Finance, the slightly slower start to the year has been overtaken by a pick-up in deals activity, with more buyers in the market than for at any time over the last year.
Seb Saywood, investor at BGF, said the East Midlands may have been lagging behind the national scene. He added: “The quarter after the Truss Budget there was definitely a wobble, but things have improved measurably since January and real momentum has built again.
David Bains of LDC pointed out that, ultimately, the M&A market has a lag factor. “With Truss disrupting the market, why you take your business to market,” he said.
Pete Taylor is the managing director of recruitment firm Gi Group, which recently acquired his previous firm Encore Personnel. He said: “Encore had been approached many times over last 10 years to allow the owners to exit and retire – but the multiples needed to be right. The strong management team in place at Encore added value to the deal for the exiting owners. It was a brave move for Gi to take because of labour shortages in the UK.
Sandra Wong, partner at Browne Jacobson, though that UK companies were attractive for overseas investors, such as Gi Group. She said: A lot overseas PE funds are interested in UK targets. We see some US investors, but not as many as those from Europe. There is talk of Chinese investors coming in to the UK, when traditionally they’ve concentrated on Germany. It’s good for our market to have a range of potential buyers.
Ray Harris of investor Foresight said that mutiples being subdued wasn’t just confined to the UK. He said they were even down the US. “They’ve halved in a few months,” he said.
Simon Clewlow of Santander used anecdotal evidence to show that the market is very much back.
He said: “We have a client in the telecoms sector who have made 15 acquisitions over last few years; but now they’ve said they’re going to pause as the market is too hot. We’ve also seen a number of buy-and-builds come through who have said they’re no longer interested in small businesses as there’s not enough scale.
Walker: “What we’ve not had for a long time is a clearing out of the businesses who don’t add anything to the economy.”
Talk then turned to whether the General Election on the horizon will affect the market.
Tom Copson from Rowleys said: “With the Truss government people thought: “Things can change really quickly. However, most businesses are now catching up having been through a tricky time and they have a stable vision of the future.”
Clewlow also pointed to the Covid months, when businesses had peaks and troughs. “It takes time for things to even themselves out,” he said. “I think we saw that happening at the back end of last year.”
Harris pointed out that there was a new problem in town – the energy crisis brought on by the war in Ukraine. “Many investors are now looking at company’s energy profile as part of their due diligence. How do you deal with that as an adviser?” he said.
Copson: “I still think there’s a lag – even on energy. But, you’re right, due diligence can be a nightmare sometimes.”
And has Brexit had any long-lasting affect on deals, the panel was asked.
Harris said: “There was a supply chain issued 18 months ago – then it eased, but the problems moved elsewhere. The supply chain issue has gone, but the next thin could be energy, it could be the use of tech. There’s always something different.
Clewlow asked the panel if Brexit had impacted interest in UK as a stepping stone into Europe. He said: “Do investors now want something in mainland Europe?”
Wong said that since Browne Jacobson has opened an Irish office, it was seeing more activity because of Brexit, while Walker thought the winners were the bigger companies who can manage supply chain pricing.
But Taylor said that recruitment is a “mile wide and an inch deep”. He added: “We’re still seeing massive problems with the supply chain.”
We ended the conversation by asking each panellist what is the best and worst case scenario for those looking to buy or sell a business over the next 12 months.
Harris: “Maintaining growth in difficult times is hard right now. That will differentiate those that exit and that don’t.”
Bains added: “There are always plenty of sellers and plenty of buyers – all you need are the right economic conditions. The best case scenario is that the Capital Gains Noise comes back and the market goes crazy. The worst case is there’ll be continued disruption with more inflation, deals will be pushed back, it’ll then be too close to the Election and all of a sudden we’re in 2025.
Walker said that those who will come out best will be those who stick to a strategy. He added: “Businesses should continue to plan for long term. The ones that will be challenged will be those who are reactive.”
Copson said: “There are a lot a businesses who have got their house in order in the last few years, and we should so better quality businesses go to market in the next few months. The worst thing that can happen is the economic environment changes again.”
Wong added: “The best case is that deals will return to be run as an auction process. The worst will be that businesses won’t have their house in order when they come to sell.”
For Taylor, the immediate future was that Encore and Gi are merged successfully. He wants to concentrate on agility and innovation and avoid a race to the bottom.
Clewlow said: “Sometimes people miss the boat if they wait 18 months get better deal. It’s all about buyers and sellers keeping an eye on what’s going on in their sectors – and then trying to time as best they can.”
Saywood said: The best case is that there is stability in the economy and businesses have the confidence to invest. The worst case is that there is more uncertainty and another wobble.
