Manufacturers expecting increase in M&A activity during year ahead
ALMOST three quarters of UK-listed manufacturing and industrial companies are expecting an increase in M&A activity over the next 12 months, according to a new survey.
Almost half of respondents to the latest Deloitte Manufacturing and Industrials M&A Predictions report cited a rise in private equity activity as a primary driver for this increase.
The bi-annual report includes the views of M&A chiefs on the current economic environment, deal drivers, valuations and key themes of successful deals. Companies surveyed have a combined market cap of nearly £300bn.
Pauline Biddle, Midlands-based partner in Corporate Finance Transaction Services and UK Aerospace & Defence M&A Industry Lead, said: “While corporate sector fundamentals have been strong, economic uncertainty over the last few years has significantly dampened corporate risk appetite.
“However, since the start of the year, stronger economic growth forecasts across many western economies, particularly in the UK, have given a major boost to confidence and, as a result, interest in M&A activity. Our latest CFO Survey suggests that risk appetite among UK CFOs rose to a six-and-a-half year high in the first quarter of 2014.”
Emerging markets were the most likely place for acquisitions responders concluded, with two thirds considering potential acquisitions in these regions.
“A significant trend in this survey is the increase of private equity activity in the industry. Nearly 44% of M&A chiefs named this as a primary driver for mergers or acquisitions in the coming months, up 12% from our spring 2013 study. It is clear that CFO’s increased confidence, coupled with the strong availability of debt, allows for more competition for the available assets – which could push valuations up,” she added.
A similar number of responses (44%) also identified private equity-owned companies as a primary source of target businesses, up from 28% last autumn.
One of those polled was Shaun Smith (left), Group Finance Director at West Midlands-based AGA Rangemaster.
He said companies, having focused on restructuring their businesses and repairing balance sheets during the downturn, were now seeking out growth opportunities.
“Whilst continuing to look for organic growth, the improved availability of finance, strengthened balance sheets, the narrowing gap between buyer and seller price expectations coupled with a desire to adjust portfolios means acquisitions are likely to become increasingly attractive,” he said.
“In looking at new overseas markets, joint ventures can bring additional benefits including greater knowledge of routes to market, potential customers, suppliers and local regulations.
“Against this background the outlook for growth, both organic and acquisition led, looks more attractive than for some time – as highlighted in the Deloitte report. Few companies will be expecting a quiet time ahead.”
