44 DEALMAKERS
However, he adds: “I’m confident that even if we see a dip in activity for a few months, it will stabilise in the second half of next year and we’ll still see a similar amount of deal activity overall.”
Andrew says the ongoing support provided by the government’s Coronavirus Business Interruption Loan Scheme (CBILS) will see plenty of liquidity remaining in the market in the coming months.
He says: “We may then see a pregnant pause in transactions after quarter one, which will coincide with funders reviewing the market and their own balance sheets, perhaps assessing where they may be overexposed and reviewing their target sectors.”
And even after some of the government loan schemes come to an end, he believes good levels of finance will still be available with alternative funders keen to continue their growth and enhance their client base.
towards business models that offer software as a service, with long-term secured recurring revenues driving higher multiples.
“Those tech firms that are serving the healthcare sector are very sought after, with the health sector showing consistent growth and limited exposure to negative market factors.”
It’s also been
encouraging to see many businesses are still growing, creating jobs, and attracting investment
However, it is not all good news. Andrew says: “On a more concerning note, I suspect there will also be an increase in business turnaround transactions when some of the pandemic support, such as Time to Pay arrangements come to an end and we may well see a number of pre-pack deals going through.”
David Filmer, partner in Forbes Solicitors corporate team, also believes M&A activity will rise as restrictions begin to ease and the post- pandemic world comes into sight.
Andrew Feeke
Andrew predicts that in the near term, there will remain a strong appetite from private equity funders for well-managed businesses in the tech and healthcare sectors.
He goes on: “Both prior to and throughout the pandemic we’ve seen an ever-increasing drive
He adds: “The buy-side will become more assertive - for businesses that have managed to maintain a strong balance sheet and cash flow position - and will emerge strongly to take advantage of opportunistic and strategic acquisitions.”
He adds: “Private Equity houses remain highly liquid and have money to invest. Many PE firms are remaining resilient and actively seeking new opportunities.
“It is likely that PE funded deals will continue to look for new platforms as well as an upward rise in bolt on acquisitions for their portfolio companies.”
Looking ahead to possible high-profile deals in 2012, Accrington-based catalogue and ecommerce retailer Studio is looking to put itself up for sale after hiring a specialist advisor.
The business provides a personal shopping service to around 1.8 million customers each year through a combination of direct marketing and online.
David Filmer
The company is owned by Frasers Group, which holds a 37 per cent stake, and Schroder Investment Management, which holds a 19 per cent stake.
Options for sale are being explored after Studio produced bumper sales figures during the lockdown. In the six months to September 25, revenues increased by 17 per cent to £268m and pre-tax profit increased 52 per cent to £17.7m.
Studio says figures have continued trending upwards since, and it has now enlisted the services of Stifel, a financial advisor which will be able to conduct a formal sale process.
Expert View POSITIVE SIGNS AHEAD by Nick Hodgson senior associate, Forbes’ corporate team
Since March 2020 and the first lockdown most businesses have had to review their operations to get through the pandemic. Many have slimmed down their operations or diversified to meet the demands of the market.
There is no doubt that there was initially a slowdown in corporate deals but recently we are seeing some returning positivity to the market. It seems that some businesses have waited long enough for life to return to normal and transactions are still coming through the system.
As we head into 2021, what factors will drive the corporate deal world? The first and probably most important will be the sector.
Clearly retail and hospitality have been dramatically affected with high profile insolvencies and likely more to come. However, we have seen other sectors being resilient.
For example, with the increased use of technology within businesses
as employees continue to work from home and an increase in DIY projects, we have identified the digital and technology and home improvement sectors as remaining buoyant and we believe they will continue to be so.
It is probably also true that some businesses may see the current climate as presenting them with opportunities.
No doubt the structure of deals will continue to develop. As valuations become slightly more uncertain due to the lack of financial information, we will see mechanics for adjustments to payments in the transactional documentation or payments being more heavily based upon future performance of the acquired business.
Although with continuing restrictions, the uncertainty that the pandemic continues to bring, and I haven’t mentioned the B word at all, we need to be flexible in our preparations for the future.
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