Loading…

Is the M&A market in a "new normal"?

As the country moves into a “new normal”, is the M&A market following suit? We explore which of the pandemic-induced changes to dealmaking are here to stay and how they will impact selling your business. 
Appetite for and attitude towards deals

Appetite for and attitude towards deals

On the face of it, both in trade M&A deals and the Private Equity (PE) and Venture Capital (VC) investment markets, the appetite for transacting appears as strong as it was prior to COVID-19. This was partly helped by fears the Spring Budget would bring a rise to Capital Gains Tax (CGT) rates, which led to an acceleration of deals in March. However, no changes to CGT were announced, and demand for transacting from both buy and sell side has held up post Budget. 

While demand for deals is still present, there is a subtle shift towards more cautiousness on both sides than seen previously. Buyers and investors, in the wake of a period of such turbulence for many industries, are taking a more focused approach to due diligence, including digging further into the commercials of the target. Sellers are showing more caution with respect to the timing of going to market, and are aware of how it can impact the deal process and maximising value. 

This air of caution does have its positive side. From the buyside, if the right balance is achieved, taking more time in the transaction process to really understand the business will likely help to strengthen the relationship between buyer and seller. From the sellside, it means sellers have more time to adequately prepare and work with their advisers to time their approach to the market in order to maximise value.

About the author

Meera Shah

+44 (0) 20 7556 1452
shahm@buzzacott.co.uk
LinkedIn

Appetite for and attitude towards deals

On the face of it, both in trade M&A deals and the Private Equity (PE) and Venture Capital (VC) investment markets, the appetite for transacting appears as strong as it was prior to COVID-19. This was partly helped by fears the Spring Budget would bring a rise to Capital Gains Tax (CGT) rates, which led to an acceleration of deals in March. However, no changes to CGT were announced, and demand for transacting from both buy and sell side has held up post Budget. 

While demand for deals is still present, there is a subtle shift towards more cautiousness on both sides than seen previously. Buyers and investors, in the wake of a period of such turbulence for many industries, are taking a more focused approach to due diligence, including digging further into the commercials of the target. Sellers are showing more caution with respect to the timing of going to market, and are aware of how it can impact the deal process and maximising value. 

This air of caution does have its positive side. From the buyside, if the right balance is achieved, taking more time in the transaction process to really understand the business will likely help to strengthen the relationship between buyer and seller. From the sellside, it means sellers have more time to adequately prepare and work with their advisers to time their approach to the market in order to maximise value.

Overall deal process

Overall deal process

There is no doubt that transactions have been missing the in-person contact, which is crucial for building relationships between buyers and sellers. However, it’s clear that the agility and flexibility ensuing from the use of virtual meetings will mean they’ll continue to play a part in dealmaking going forward. While not a replacement for in-person meetings, they easily enable parties from all over the world to connect in an instant. This has smoothed the process and opened up more doors for an even greater level of cross-border transactions. Our team has experienced this directly with recent UK-US transactions completed with ease. 

Deal structures

Deal structures

When the M&A market re-emerged last year after the initial impact of the pandemic, there was discussion about the greater emphasis buyers were putting on earn-out structures and the additional work going into COVID-19 adjustments, with the notable coining of the phrase EBITDAC (Earnings Before Interest, Tax, Depreciation, Amortisation and Coronavirus). However, I still view buyers as falling into two broad buckets, which is unchanged from pre-pandemic trends. 

The strategic buyer

This type of buyer understands the value in the company, and the synergies it will bring. Their approach to valuation and structure is typically simpler, with fewer complex areas to negotiate, and therefore often a more straightforward process. This is of course dependent on many factors, including their understanding of the sector. 

A financial buyer

The second type is a financial buyer, or one who follows a specific structure to pricing on a deal. They tend to take a more formulaic approach to valuation, sometimes due to fund cycles and demonstrating a return on investment for their investors. These buyers often (though not always) carry out a more in-depth financial analysis of the company, even prior to exclusivity and a due diligence process. 

From what we’re seeing in the market today, though there will be exceptions and limitations depending on the specific deal, these two main categories of buyer still hold true.

What does this mean for selling your business?

What does this mean for selling your business?

The appetite for doing deals remains strong in this “new normal”. Certain aspects of the market, such as deal structures and types of buyers, remain unchanged, while others have positively evolved i.e. the deal process now tends to be more focused and more efficient. If you are looking to transact, our view is that now is a great time to benefit from an attractive “new normal” in the M&A market.

Speak to an expert

If you’re an entrepreneur and have any questions about whether the timing is right to sell your business, or would like to discuss issues specific to your sector, get in touch below. 

Please complete all required fields above.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
close back
Your search for "..."
did not yield any results.
... results for "..."
Search Tags