Region’s M&A market set to grow this year
The M&A market is ready to take off in 2023, say the industry experts who shared their insights in TheBusinessDesk.com’s Momentum and Agility webinar.
James Croxen, corporate finance director in Clearwater International’s Leeds office, warned against doomsaying, adding, “There are lots of positives out there. There’s lots of PE with money. There are lots of great businesses to be invested in. And I think we can hit this year with some real momentum and get some deals done.”
The weak pound was an advantage for attracting international investors, James Foster, head of Shoosmiths’ private equity and venture capital group in the North.
Adrian Rowles, director in Santander’s Structured Finance, Financial Sponsors business, said the strong M&A market in the first three quarters of 2022 led to the perception of a weaker market in the later part of the year and into 2023.
“We’ve got to put it all in the round, really,” added Amy Pierechod, partner in Gordons’ corporate team. “Coming out of the pandemic, there was just so much deal activity going on. So I think we’re always going to just feel that little bit quieter as we kind of level out into perhaps something a little bit more normal in a lot of ways.”
But not all sectors are equal. Barry Jackson, of BGF, said consumer and leisure, and other sectors reliant on discretionary spend, were less attractive for investment as the rising cost of living impacted consumer spend. “The converse of that is those sectors that aren’t directly exposed to consumer spending, such as B2B businesses, particularly around technology, continue to do well and are viewed as pretty robust places at the moment.”
Pierchod, who specialises in start0ups and SMEs, agreed. “There’s a huge focus on regional tech hubs at the moment, of which Leeds is a really important one. And then, obviously, the government, they’ve come out and said, they’re really keen to back innovation, I think there’s been an commitment to increase public funding in R&D to about £20bn to enhance strength in things like AI, fintech, green tech.
“FinTech, in particular, Leeds is really well known for. And we are seeing kind of investment in tech businesses in the north, I think it’s something like five times what it was before Covid.”
Croxen added, “Most investors are looking for stable, long-term revenue streams,. That’s a large part of the reason why some of the kind of more tech-focused SaaS businesses are doing pretty well on the market, because they’ve got long visibility and long-term recurring revenue.”
One shift in the M&A market was a greater emphasis on due diligence from investors, and a growing insistence that firms demonstrate high standards of environment, social and governance (ESG) commitments.
“Depending on how you’re doing it, it can be a value driver in deals,” Croxen said. “But it could be a value drag if companies aren’t doing it properly. It’s not just a case of paying it lip service – companies really need to have a proper ESG policy strategy and be able to say what they’re doing. And in those instances that can genuinely add value and turn on multiples that are being paid for businesses.”
When might the market spring back into action?
Foster said, “The corporate finance guys that we tend to speak to, like Clearwater, appear to be busy doing a lot of pitching, which usually means we’ve got a two to three month lag until those processes really start to gain some momentum.
“I think we’ve got a slower Q1, possibly Q2, but I think towards the back end of the year those deals will start to come through.”
Rowles summed up the current state of the market: “Fundamentally, businesses with strong performance metrics, market position, growth prospects, will always attract significant appetite and competition. And investors have got a lot of dry powder to invest in significant resources. When you couple that with a wide range of lender options, there will be deals done and investment seen in the region, which is clearly positive.”
You can watch the full webinar here:
