Having recently completed another ‘post-Covid’ transaction ourselves, and with more businesses opening, we feel it is an appropriate time to offer our perspective on current M&A activity. Our recent deal was the sale of the 140-yr old Martindale Group – an international manufacturing group based in Birmingham, with additional operations in Thailand and Ghana, and this cross-border transaction completed on 28 May 2020. Read more here.
As dealmakers, we see the reassuring evidence for business owners looking to sell or raise funds, as well as investors considering opportunities, of significant activity. This by no means underplays our sympathy for the genuinely hard-hit industries, nor does it provide any sort of opinion on the wider societal or health issues.
Having lived and worked through previous recessions, including 2001 and 2008, the commentary in mid-March 2020 left many of us with a heightened sense of fear to say the least. Descriptions of the worst recession in history left many questioning levels of future deal activity, what a ‘new normal’ might mean, and even how the virus/lock-down might affect capitalism and global trade themselves.
Looking back over the last few months we suggest the following:
Those transactions that were always sound long-term strategic decisions have still proceeded, just more slowly. Having built momentum over months or even years, the current hiatus can be viewed as a blip rather than a fundamental shift.
Public & Private Equity Fund-raising
Fund-raising both on public markets and from Private Equity to existing investments has been plentiful, shoring up the position of stronger companies for the long-term. Some are now confident enough to look at growth and even returning some ‘rescue’ funds that were not needed.
Private Equity and Trade buyers that have become comfortable with existing portfolio / subsidiaries are deploying capital aiming to capture a position ahead of an upturn. This may well favour follow-on investments and bolt-on deals as a lower risk option but this does not preclude new investments and it should not be forgotten that with so many existing PE-backed platforms the likelihood of buyers remaining in the market is strong in most cases.
Private Equity firms have continued to raise new funds, and already have large amounts of capital to deploy. This has led to increasing volumes of outbound deal search activity.
Strong Subsidiaries Being Sold
Businesses or groups with weaker balance sheets are being sold or broken up. Particularly in over-geared groups that have grown with leverage and acquisition. There is evidence of good subsidiaries / non-core divisions coming to the market and being acquired as perfectly sound businesses with strong long-term prospects.
There are business failures, the first of which we are already witnessing in leisure, retail and travel sectors. Whilst these represent the most negative end of current activity, for specific turn-around focused acquirers this may be a good time to be active in the market.
Opportunistic Searching from Well-funded Investors
The heightened levels of opportunistic searching from those companies that are well funded and equity investors with significant funds, are being supported by a wide variety of lenders, offering the broadest array of debt products – this again is very different to the previous recession of 2008/9.
Increasing use of technolgy
Fortunately most M&A professionals were already accustomed to remote working, relying on video conferencing and online data rooms for cross-border deals. Recent events have only served to enhance this ability to collaborate remotely and made confidential meetings with multiple parties easier and more common. For business owners seeking comprehensive advice from corporate finance advisors, lawyers, tax specialists and others it has never been easier.
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