Expert View
POSITIVE TIMES AHEAD
by Jenny Burke, partner at Forbes
With prevailing high-interest rates, trade tensions and inflation, 2023 was a turbulent year for the UK economy. Nationwide there were reports of decreasing numbers and values of M&As.
However, based on our experience and on speaking with other industry professionals it is apparent that UK business owners are determined to continue with both growth and exit plans and so our outlook looking into 2024 remains positive.
It may be the case that acquirers opt for smaller scale deals with a modest and reduced financial risk approach. However the market we operate in remains buoyant and we have a pipeline of interesting and challenging deals for the first quarter of 2024.
When looking at sectors specifically, it’s likely we’ll observe an increase in M&A within the healthcare industry,
“These included the Amend & Extend of Term Loans from 2025 to 2028 – and issuing new Senior Secured Notes.”
The brothers added: “We remain focused on deleveraging the business and driving earnings growth in the near term.”
November proved to be a busy month which also saw EG Group reaching a “ground- breaking” strategic deal to buy Tesla’s latest ultra-fast charging units.
The business is looking to roll out up to 20,000 electric vehicle chargers across around 3,600 of its petrol filling stations, as well as third-party locations, over time.
Meanwhile, for Asda, the EG Group acquisition has created a group with expected combined revenues of nearly £28bn, serving 21m customers every week.
Gary Lindsay, managing partner at TDR Capital, which owns the supermarket group with the Issas, said: “This transaction is all about growth – and bringing together the complementary strengths of Asda and EG UK.”
It followed its acquisition of 119 convenience sites with attached filling stations from the Co-op Group, which have started to convert to Asda Express.
The supermarket group is rolling out its Asda Express across EG UK’s 356 predominantly freehold sites, which include modern convenience stores on petrol filling stations, while committing to opening a further 300 stand-alone convenience stores by the
post Covid-19 pandemic; with a specific focus on innovative solutions for telemedicine developments, the digitalisation of healthcare data and artificial intelligence (AI) applied to medical diagnostics.
Digital and technological transformation and the increasing interest in AI are also likely to drive and accelerate M&A within the tech sector throughout 2024.
Many companies are looking to acquire or invest in innovative tech companies to gain a competitive advantage and deals within the renewable energy sector, particularly solar and wind, are attractive to acquirers as governments globally seek to adopt policies and incentives to transition into a greener economy.
The sensitive markets remain retail and hospitality, with most lenders taking a cautious approach to investment and we would forecast that this remains similar throughout 2024.
end of 2026. The acquisition also accelerates Asda’s move into the £62bn food service market, with the transfer of 462 Greggs, Burger King and Subway outlets as franchise agreements. Asda now wholly owns fast food chain Leon, which it will also look to introduce to its stores.
Asda also confirmed to investors that it had repaid a £200m loan facility used to acquire the Co-op’s convenience stores and forecourts business.
That repayment was made possible by Asda’s strong cash generation in the year to date, which reduces the retailer’s total debt leverage to 3.8x.
Michael Gleeson, Asda’s chief financial officer, said: “Asda has a sustainable capital structure, strong cash generation and clear strategy to deleverage over time, as the early repayment of the loan facility used to acquire the Co-op business demonstrates.”
The Blackburn-born Issa brothers both made the 2023 Sunday Times Rich List. According to the research they are estimated to be worth £5.05bn, an increase of more than £300m over the previous year. They were placed as the fifth richest people in the North West of England.
Their business empire began back in 2001 when they bought a run-down petrol station close to Bury town centre.
LANCASHIREBUSINES SV
IEW.CO.UK
Ryan Bilsborough Manager – corporate finance
/RyanBilsborough /PMMSolutionsfor
BusinessLLP
CHALLENGES FACING M&A IN A HIGH
INTEREST ARENA In a high-interest environment, the process of buying and selling a business can endure a myriad of funding challenges that significantly influence the transaction.
For prospective buyers, the cost of capital becomes a concern. Financing of the acquisition can be more expensive as higher interest rates increase the overall debt, limiting the financial flexibility of potential acquirers and forcing them to reassess the feasibility of deals. We often find that lenders have a lower tolerance to risk, and therefore a buyer may need to utilise multiple lenders to obtain the required funds.
Sellers face further challenges. The increased cost of borrowing may diminish the pool of qualified purchasers, making it more difficult to find buyers willing to meet the desired valuation and prolonging the selling process – all affecting the timing for business owners seeking an exit.
The valuation dynamics of businesses can also be impacted by higher interest rates, which can lead to lower valuations – potentially creating a mismatch in price expectations between buyers and sellers. Negotiating a deal that satisfies both parties becomes more intricate, as high interest adds complexity to the valuation equation. Funders will likely place a greater emphasis on due diligence and require enhanced stress testing which can increase the risk of a deal failing.
Successfully navigating the funding challenges associated with buying and selling a business in a high-interest environment requires astute planning, creative deal structuring, and a thorough understanding of the evolving market conditions – led by professional advice. Buyers and sellers must be adaptable and strategic in their approach to ensure the viability of transactions in this challenging climate.
Arrange a free, confidential meeting by
calling us on 01254 679131 or visiting
www.pmm.co.uk.
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IN VIEW
DEALMAKERS
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