The last 12 months have been exceptionally positive for the local mergers and acquisitions market. Deals have been successfully completed across numerous sectors and including all types of transaction. Funding availability has generally been very good and has supported this activity, facilitating Management Buy Out transactions as well as Companies in a growth phase or on the acquisition trail.
A particular trend that we also continue to see is overseas companies looking to acquire UK businesses. These overseas acquirers are increasingly interested in owner manager businesses, rather than just very large businesses as would have been the case in years gone by. Company valuations have therefore remained strong, with a slight uptick being seen in valuations for high quality businesses coming to the market. The mood in the corporate finance market was therefore very positive as the summer holidays approached.
However, during the summer break, the results of an employer’s survey by the Recruitment and Employment Confederation (REC) were released. This found that 31% of employers expect the economy to worsen, with only 28% expecting it to improve. This highlighted that Employers' confidence has declined since the last survey in July, and REC chief Kevin Green said the reduction should "raise a red flag" and called for greater clarity over Brexit. With the EU’s chief negotiator Michael Barnier recently saying that it was “deadlock” over the UK’s Brexit bill this greater clarity on Brexit, unfortunately, seems some way away.
This continuing uncertainty and the effect this may have had on business owners’ outlook for the economy was of significant interest to me, as business confidence is a key factor in the mergers and acquisitions market alongside the availability of funding. Companies generally make big investment decisions when confidence is high and they can access the finance.
So, if business confidence is potentially on the decline, with Brexit a factor, what does that mean for the mergers and acquisitions market for the remainder of 2017?
Currently I do not detect any reduction in mergers and acquisition activity. We are seeing deals completed and the pipeline of potential transactions coming to the market is strong. We also continue to be frequently approached by companies looking to acquire good quality businesses. The funding market also continues to evolve in a positive way with the range of funding options continuing to expand. Of significance for the local market is the emergence of the Northern Powerhouse investment fund – this provides over £400m of investment funds in debt and equity to the North of England. When this is placed alongside the existing pool of funders, including the £2.5Bn Business Growth Fund, companies currently have a wide choice of funding options. Good availability of funding gives potential acquirers the confidence to actively seek businesses to buy.
My current feeling is therefore that despite the clouds potentially on the horizon, we are expecting a busy Autumn in the local mergers and acquisitions market, with business valuations continuing to remain strong. If the time to reflect over the summer holidays has left you contemplating life beyond your business, you might be interested in our upcoming seminar which will focus on getting the most from selling your business.
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