M&A insights for 2020
What to look out for in 2020 – the key drivers of investments, corporate finance and mergers & acquisitions for the year ahead.
Clarity on Brexit
Whilst all business owners will have registered the resounding Conservative victory in the election, we have already started seeing the evidence that business confidence has increased in the New Year and this has also had a knock-on effect on attitudes towards M&A.
2019 M&A activity was slightly subdued in the UK by comparison to 2018 and most commentators blamed this on a combination of 3 factors – global trade tensions, Brexit and the general election.
Whilst the first of these rumbles on, it is increasingly likely that a US/China trade deal will be achieved. In the UK the election result of a business friendly, low tax government means that 2020 will see an uptick in M&A volumes with both Trade and PE releasing unspent funds from last year to supplement slightly lack-lustre organic growth.
Prior to the election there was significant discussion about Entrepreneurs’ Relief with both Conservative and Labour politicians suggesting it needed addressing. The Labour policy would have been to scrap the relief, the Conservatives suggested it needed “review and reform” having not fully delivered on its objectives.
In previous years Entrepreneurs’ Relief has been extended in scope to include EMI scheme holders as well as increased in amount – now applying to up to £10m of gain. The government have expressed concern that the unexpectedly high cost of the relief has not delivered the desired outcome of increased levels of entrepreneurship. At the same time we can take comfort that the government will continue to do everything it can to maintain a business-friendly attitude.
Whilst the threat of removing the relief altogether may have been removed it would be worth business owners and investors who are counting on benefiting from Entrepreneurs’ Relief to follow the March budget and check on any adjustments. With the Prime Minister’s recent comments (17 January 2020), there may well be changes planned. Please check in with Rockworth if that would be helpful as we will be keeping our ears to the ground on this topical issue.
Whilst an increased level of clarity on Brexit is helpful and has allowed plans to be firmed up and activity to start, the likelihood of a clean break Brexit has increased.
This will drive M&A volumes, both positively and negatively, in different sectors. We are already seeing an increase in interest from overseas parties needing a footprint in the UK to continue their own trading on the one hand whilst those industries most affected by the changes will have their hands full and so we are finding that operational factors are taking precedent.
Key themes for 2020
Specific sectors will see certain factors continue to grow in importance and therefore be key drivers for M&A. Trends to look out for include:
- Environmental, Social and Governance (ESG) factors will be a big focus for consumers and investors, pressuring businesses in sectors ranging from fashion to transport to focus on non-financial performance and metrics.
- 5G connectivity increases and the Internet of Things continues to move into all aspects of our lives.
- Sluggish public markets and strong balance sheets combine to stimulate M&A activity, as listed businesses use acquisitions to achieve growth.
- Private Equity firms, with more capital to invest than ever before, create a lively buyout market.
Due diligence continues to grow in sophistication
The complexity of due diligence has increased in recent years, meaning that preparation is critical for deals to succeed. Vendors should be aware that it is now common to have not only financial and legal due diligence but also formal analysis (often led by external consultants) of real estate, insurance, commercial landscape, IT, HR, culture and other more niche areas.