Selling your business: The market
CORPORATE buyers are a renewed force in the M&A market as they capitalise on cash-rich balance sheets, according to LDC director John Swarbrick.
While the number of sales and the multiples achieved may have slowed significantly, those close to the market insist there is still an appetite for deals.
“In the current climate private equity is finding achieving valuations far more difficult than it was in the heady days of 06/07,” says Mr Swarbrick.
“There is less bank debt around which makes it more difficult for private equity to fund deals and we are seeing quite a lot of activity from large corporates with fairly strong balance sheets with a lot of cash who are now back into the market buying assets where they can see synergistic benefits and where potentially they may be in a flat market and one way to push their growth forward is through acquisition.”
While the funding climate might be more challenging for private equity houses in acquisition terms, Mr Swarbrick said the market was creating opportunities for them to exit businesses.
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Debbie Jackson, corporate partner at law firm Walker Morris, shares the cautiously optimistic view of the deals market.
“Despite the economy remaining fragile, and it is still early days, there does seem to be a greater appetite to do deals at the right price.
“Companies are now looking at acquisitions to expand and counteract low growth. Greater buyer confidence coupled with a shortage of good businesses for sale should keep prices up.
“Even the private equity market, which is facing investment deadlines, seem more willing to do deals at lower debt to equity ratios and at lower returns than previously seen.
“Cash-rich purchasers who are not dependent on third party funding are very attractive for sellers and it is these deals which are proving easier to complete.”
The uncertain economic outlook can act as a break on business sales as owners fear they will not be able to secure the value they are looking for. But Dan Renton, director in corporate finance advisory at Deloitte, says the same uncertainty is also motivating others to consider selling.
“Presently we have seen some renewed stability and predictability across public and private markets. Taking into account the prediction of only a modest underlying recovery, many vendors are concluding that now is a sensible time to explore value if an exit is to be contemplated over the medium term.”
“There’s a whole bunch of managers and owners in the market who have had a difficult time over the last few years and are wondering whether they’ve got the stomach for another three or four years and therefore wondering, in what is an increasingly stable M&A market, whether they should do something over the next 12 months.”
Morris and Deloitte is now available to download here, where you can also read this week’s other online features looking at the subject.
