mergers & acquisitions 27


Greater supply and demand fuels M&A market


The southern region of Baker Tilly Corporate Finance notes an improvement in M&A activity. This upward trend is expected to continue as buyers look to accelerate growth by acquisition and vendors return to the market as the economic recovery continues at a pace. Although there is greater appetite for transactions, we have not seen any significant improvements in valuations, except in certain hot sectors, writes Rob Holmes, corporate finance director of Baker Tilly


Supply


There has been a noticeable pick up in the supply of businesses coming to market. Many of these are owner- managed businesses run by the baby boomer generation who would like to have exited and retired already, but whose succession plans were delayed given a lack of buyers and reduced valuations during the recession. Given the improvement in market conditions, many shareholders are now actively planning for their exit.


An increase in the number of buyers and an advantageous capital gains tax regime makes now an excellent time for shareholders to consider their succession plans.


Demand


From an acquirer’s perspective, now is an ideal time to buy. There is an increasing supply of businesses for sale and valuation multiples in most sectors remain below pre- recession levels. This is likely to be a feature of the market for some time to come – historically high valuations were supported by fairly aggressive debt funding which is unlikely to return given capital adequacy requirements and increased banking regulation.


Where are we seeing the greatest level of interest?


Private equity


We have seen greatest level of interest from private equity, many of whom are sat on substantial cash resources to invest. We are seeing greater flexibility in terms of the structure of deals, including a more collaborative approach to working with management to affect an exit for the owner manager. As well as institutional private equity, we are seeing more activity


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – SEPTEMBER 2014 SMEs


Smaller companies are on the acquisition trail, particularly those who have stockpiled cash as a defensive strategy through the recession and are now keen to grow but are struggling to generate significant organic growth. Acquisitions at the right price can provide a means of accelerating growth, whether by picking up new customer relationships, new products or additional skills and expertise.


Another factor driving the volume of transactions is the availability of funding. There has been some freeing up of capital from banks and other financial institutions, but only for transactions with the right risk profile. We are seeing most of the high-street banks funding acquisitions of businesses with robust profits in niche and defensible markets where assets can be provided as security.


Valuations


An availability of businesses for sale and an economic recovery that remains in its infancy means that business valuations have not improved significantly. That being said, there are a number of hot sectors where activity is intense, and competitive tension drives valuations upwards. This includes software and IT managed services.


Conclusion


Now that the M&A market is showing signs of improvement, many shareholders are considering bringing their business to market. We would always advise that sellers engage with advisers at the earliest opportunity, ideally at least 18 months before going to market. This can significantly improve the likelihood and value of an exit.


from family offices and high-net-worth individuals who are completing private- equity style deals and who can be flexible in terms of deal structure and their (and the seller’s) involvement in the business going forward.


Large corporates


Many large corporates are able to fund acquisitions from existing cash resources. There is a growing trend in purchases from overseas buyers driven by the strength of UK companies as innovators in their chosen markets, UK companies providing an access into Europe and a perception among international buyers that there is some prestige in having operations in Great Britain.


Baker Tilly Corporate Finance is a part of Baker Tilly, the seventh largest accountancy practice in the UK. Baker Tilly Corporate Finance specialise in advising shareholders on their succession plans in the mid-market (£1 million to £100m deal value).


Details: Rob Holmes 07812-997165 rob.holmes@bakertilly.co.uk www.bakertilly.co.uk


www.businessmag.co.uk


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