Business as usual: Uncovering the latest M&A market developments

Wednesday June 5, 2024

Dan Salt explores how a growing number of businesses are pursuing growth through M&A

M&A activity in 2023 was characterised by uncertainty, with both deal volumes and values subdued due to the influence of inflation, high interest rates and low consumer confidence. The large-cap market bore the brunt of these conditions, with the lower mid-market proving its resilience – yet all businesses will have recognised their impact at some point.

For these reasons, management teams will be all the more grateful that 2024 has so far delivered a long-awaited period of stability, consistency and predictability despite some economic pressures remaining.

Operating conditions are generally improving, with falling inflation enabling business owners to forecast more effectively and plan for the year ahead. There are also growing expectations of at least two further cuts to the base rate, which would ease constraints and boost business confidence further.

Of course, there is no doubt that the macroeconomic picture remains challenging – yet UK businesses are continuing to show tremendous amounts of resilience. Indeed, UK PLC and large corporates appear to be reaping the benefits of creating resilience and protecting balance sheet strength during the downturn rather than higher-risk strategies to yield growth, and this approach is now feeding into the mid-market in terms of renewed interest in M&A activity.

Sector focused

This sentiment has been reflected in our own activity, with the increasingly buoyant market contributing to a steady pipeline of deal activity. We have completed 35 deals in the first four months of 2024 alone – a 40% increase in volume compared to the same period in 2023.

Perhaps most notable though is the sectors in which these deals have occurred.

A key trend of the past few years has been the diversion of investment into sectors demonstrating resilience against continued economic shocks. Technology, and healthcare as examples have proved popular amongst buyers and investors, with business models reliant on recurring revenue representing safe harbour, and more insulated from economic pressures.

Encouragingly, the first four months of this year have seen M&A activity pick back up in sectors such as business services and industrials, which traditionally perform well in times of economic stability but have naturally suffered a slowdown in activity in recent years.

Moving forward, we expect to see this trend continue as an increasing number of businesses seek to execute growth plans to coincide with economic recovery.

Dan Salt, Corporate Finance Partner

Partnerships for growth

Anecdotally, the management teams we’re working with are showing more willingness than ever to invest in their businesses. New technologies such as AI, automation and digitalisation are bringing exciting possibilities for businesses to transform their operations and position themselves to capitalise on improving economic conditions.

As such, many are approaching the funding market looking for long-term partners to support this growth – be it through the provision of financial investment, management support or operational advice. Consequently, more businesses are approaching advisers with a view to understand the full spectrum of options available to them, rather than to simply secure a swift exit.

This diversity in deal structures is also allowing business owners to achieve desired outcomes using alternative or more flexible deal types and types of capital. Falling interest rates will also likely create more flexibility within the debt markets, with debt funding returning to strength as a viable option for those looking to fund expansion if relinquishing equity is not a preference.

This period represents a promising opportunity for private equity, many of which are eager to deploy capital after a restrained 18 months and are open to negotiating flexible deal structures to suit all parties. That is not to say that there will be decreased appetite from strategic acquirers, however, as corporate M&A remains as strong an option as ever to support growth, add capability or as a defensive position.

Risk remains, however, so we expect private equity to remain selective when it comes to investment. Businesses with strong fundamentals and robust, thorough business plans outlining key avenues for growth will be best placed to attract interest, while flexible deal structures will remain prevalent as buyers seek to manage any residual downside as economic recovery continues.

For both buyers and vendors, engagement with an advisor can be integral in helping to assess the options available and stratify the outcomes.

The road ahead

Of course, the General Election is forming a key consideration for businesses looking to plan their next steps. M&A activity often accelerates in the run up to a public vote, with buyers and sellers keen to push transactions through before any potential legislative changes come into play that could impact future value.

A Labour majority is seeming increasingly likely – yet with the party’s leader emphasising the need to maintain economic stability, it’s not anticipated that a changing of the guard would have much of a tangible impact on business sentiment.

Looking much further ahead, we may see changes to Capital Gains Tax and Corporation Tax which could have a profound impact on investor sentiment. However, the overarching priority for both UK PLC and government this year will be to instigate a continued return to business as usual – and as things stand, this looks to be eminently achievable.

UK PLC and large corporates appear to be reaping the benefits of creating resilience and protecting balance sheet strength during the downturn rather than higher-risk strategies to yield growth, and this approach is now feeding into the mid-market in terms of renewed interest in M&A activity. Dan Salt Corporate Finance

Related team

Dan Salt

Dan Salt

Dan Salt

  • Partner
  • Corporate Finance
  • Birmingham