Levels of M&A activity are 18% higher than the same month last year, according to the latest statistics (February 2021). At first glance this appears remarkable, given the potential uncertainties around Covid-19 and legacy Brexit issues. This month-on-month increase has been a trend since the middle of last year, with confidence clearly returning to the market…but “why”?
In a mature business, organic growth can be tough and slow, so there is a pull to explore the opportunity to expand by acquisition. It is clear that, despite Covid-19, many corporates are cash rich and private equity firms are extremely active, especially following the short hiatus in Q2 and Q3 2020. Interest rates continue at an all-time low and the spectre of higher CGT (capital gains tax) rates remains a strong consideration for those looking to exit their business.
Covid-19 and, to a lesser extent, Brexit have added a further element to thought processes – the need to revisit operating business models. Recent deals in the technology sector in particular, have reflected the fact that processes are changing, and with many companies being technology enabled there is a need to invest to change quickly. Corporate supply chains are under more rigorous review and we see strong transaction flow from companies wanting to get closer to their end customers, and have greater control and access to supply.
The statistics show that in the last four years, approximately 42% of UK deals involved an international element. We see this increasingly, as companies seek increased diversification in markets and products. Recent cases in point that we have been involved in include the purchase of Aqualla by FM Mattsson Mora Group, the acquisition of IHeed by Cambridge Education Group, and the acquisition of Remote Learner Inc. by Learning Pool.
The level of deal activity, despite Covid-19, has made this a seller’s market, with strong assets securing high valuations. To secure accelerated growth and maximise value, both buyers and sellers need to consider throwing the net internationally; whether that border is a few miles down the road, or somewhere more exotic.