Summer M&A update 

Dan Sheahan reviews the latest developments in the M&A market

Market sentiment remains cautious as we approach the final quarter of the year.

The current economic headwinds businesses are facing are well documented, with recent rises in inflation adding to existing concerns. At the same time, the geopolitical situation remains volatile with developments around international conflicts, tariffs and trading remaining unpredictable, creating uncertainty across supply chains.

That being said, there is cause for optimism, particularly as we are entering a time of year when we typically see an uptick in M&A activity. Indeed, we’re seeing a strong pipeline of assets ready to come to market, and interest rates are continuing to steadily decline, opening up more funds for firms to invest.

While the risk appetite among private equity firms may be more cautious than it was a couple of years ago, they still have a wealth of capital ready to deploy. So where will they be looking to spend it?

Professional services proving popular

Over the last couple of years, we’ve seen significant investment from private equity into professional service firms and this only looks set to continue. It’s a sector that continues to be resilient and enjoy recurring revenues, with broader uncertainty strengthening the need for specialist support to help businesses navigate an ever-changing economic landscape.

They also present a great opportunity for firms to make platform investments, and then scale up through strategic acquisitions of smaller firms in this space. We’re seeing more of these bolt-on acquisitions, which represent lower levels of risk for investors whilst helping them to build regional, national or even international networks.

For instance, in June, the self-proclaimed ‘rebels of accountancy’ Cooper Parry – backed by US private equity house Lee Equity – expanded their global footprint with the acquisition of Liberty Corporate Finance. This was in the same month that our Financial Advisory team advised on a similar bolt-on transaction with global tax services Ryan, who acquired Inspired Corporate Finance to grow their presence in the UK and Ireland.

Looking ahead, we expect this sort of consolidation to continue as firms look for safer bets when it comes to deploying their funds.

Professional services firms are also attractive right now because of the possibility of emerging technologies like AI driving serious productivity gains. From automating time-consuming tasks like document reviews to providing a powerful tool for research, investors are excited about the potential for this technology to help drive long-term value creation within this sector.

Tech firms attracting overseas interest

We also expect the broader tech sector to be a key driver of M&A activity in the coming months. The scalability of tech firms, along with their ability to drive efficiencies and growth across different portfolio platforms, makes them attractive assets for investment. In particular, they are proving to be popular amongst investors from the US as companies in the UK are being valued at lower multiples than those typically seen in North America.

But we are also noticing an uptick in activity among trade buyers looking for businesses that offer scalable, cloud-based solutions that can easily be integrated into their operations. A great example of this was our team working with network consultancy and managed services provider, Intuitive Systems & Networks, on its sale to international technology services firm Conscia.

Management teams are critical

For any companies operating in the lower to mid-market, it’s important they focus on developing and building out their management teams. This is a vital part of preparation that needs to be considered before any business is brought to market.

As much as acquirers are investing in a firm and its future potential, they are also investing in the right management team that can deliver it. At a time when investors want to mitigate risk, this can go a long way in giving them the reassurance they need to invest their funds.

Alongside this, the quality of any M&A strategy continues to be crucial. Parties must give themselves adequate time to prepare, and ensure they are getting the best possible advice to support with marketing, valuation and positioning. It’s steps like these which drive the best possible results for everyone involved in a transaction.

A strong finish to the year?

Looking ahead, one of the biggest drivers of market sentiment for the remainder of the year will be the Autumn Statement. Last year we saw a real drive for deals to be completed ahead of any potential tax changes, as firms prepared for the first significant Budget under a Labour government in more than a decade.

While the current pipeline doesn’t seem to suggest that we’re heading towards as extensive a round of activity, it’s something that will certainly be on the mind of business leaders as they plot their exit strategies and look to maximise the value of their exit.