The pandemic brought a perfect storm in the mergers and acquisitions world and made a lot of business owners rethink their priorities. Many realised there was more to life than building the balance sheet and that they actually rather enjoyed spending time with their family and friends while predictions of a stuttering economy led them to consider if they had the stomach for another fight.
On the other side of the table, private equity firms had money stored up over the pandemic and were eager to spend it.
Globalscope, a worldwide family of M&A firms specializing in middle-market transactions (of which Corbett Keeling is a member), closed 203 deals with a combined value of $20.8 billion USD in 2022 – the highest revenue tally in the network’s 35-year history.
But, as we head towards the second half of 2023, the gloomy predictions have taken hold and while the International Monetary Fund has predicted Britain’s economy will not do as badly as thought this year they say it will have the worst growth in the G7 group of advanced nations in 2023 and 2024.
That said, while the first quarter of 2023 has not surprisingly been tough in the wider M&A market, interest in middle-market transactions has held up and there are still plenty of reasons for business owners looking for an exit to be positive. But, if you are thinking about selling, then it may be wise to start the process now before a possible change in Government at the next election could see your proceeds significantly hit by Capital Gains Tax.
We are in our 30th year and have never been busier at our boutique London M&A firm, with more than one a day directly contacting us looking to discuss how to exit. We have an industry-high figure of a 90% deal completion rate with 45% average uplift in sale value.
A closer look at the current market shows that whilst the volume and value of UK M&A deals over £150 million took a significant hit in the first quarter of 2023, the small to mid-market sized deal volumes, from £10 million to £150 million are holding up well – matching 2018 and 2019, and still stronger than 2009-2017. The heady years of post-covid (2021 + 2022) may be over for now as the world faces economic uncertainty, but there is still plenty of opportunity for business owners to find the right buyer.
In fact, Fenton Burgin, Head of Advisory Corporate Finance, Deloitte UK, found that PE funds have £1.7 trillion to invest that will drive mid-market M&A activity throughout the rest of the year.
In their 2023 M&A report, he says: “Where is the bulk of the activity likely to be? We see a big pivot into the mid-market with more investors looking at portfolio ‘bolt on’ and special situations deals. That’s good news for private UK companies looking to raise equity or to sell ahead of tax changes.”
This backs up what we have found speaking to Private Equity houses every day - they still have plenty of fire power to invest and are already feeling more positive than at the turn of the year.
Life sciences and consumer sectors are among the most active and Industrials are also seeing a lot of merger and acquisition activity with a surge in interest in the financial services sector
Robert Baxter Partner, UK Head of Corporate Finance, Global Head of Consumer Goods M&A at KPMG, said in a report that through much of 2022 vendors were still holding on to the high valuation levels of 2021 but expectations have had time to realign which will lead to a “steadier pipeline of deals” in 2023.
If you are considering an exit in the next five years, you would do well to get advice from a specialist adviser now – well ahead of the day you intend to hang your boots up. Selling a business always takes much longer than owners think and the time spent taking a position and planning an exit will reap financial rewards at the end.
You never want to put yourself in a position where you have to sell – buyers will sniff that out very quickly and adjust their offers accordingly.
The pandemic and war in Ukraine have reminded us we never know what is around the corner – so if you are thinking about selling, then it is likely that now is as good as it is going to get for the next year or so and maybe longer if there is a change in government.
Emma Keeling is the co-founder and COO of independent corporate finance firm Corbett Keeling.
