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The Top 5 drivers of M&A activity

M&A activity is on the up. What’s driving investor and acquirer appetites?

September 15, 2020

1. Costs are getting back to normal levels faster than revenues

It has been good to see a resumption of economic activity after lockdown. But restrictions remain and consumer spending patterns are far from normal. For some businesses, this means it’s possible to have the doors open but difficult to turn a profit. This is prompting owners to look at their options for financing their businesses. 

The positive news is that government, banks, and many other funding sources have recognised the challenge and are ready to help. This may come in the form of new funds, replacing debt for equity, or even collaboration between SMEs and larger corporates with strong balance sheets – the point being that M&A and investment activity is being driven by this need and there are options available. In order to survive and progress in the most positive way, it is important to explore all options and create a choice before it is too late or the ‘gap’ becomes too big.

2. Companies are adapting to changing markets

Since the start of the year customer behaviour has changed both in B2B and B2C markets – it is well documented how many markets have been affected including increased use of digital technologies, revised business models, and ‘just in case’ as opposed to ‘just in time’ supply chain priorities.

These changes are both positive and negative for different companies. It may trigger a need to acquire or merge to adapt to a changing market, or it may generate activity to capitalise in a newly discovered strength compared to previous market positioning. Both types of driver are actively promoting increased levels of corporate M&A and investment activity at present.

3. More investors are competing for deals in sectors that have proved resilient

The UK has more Private Equity firms, angel funds, alternative lenders and forms of investor than ever before. Many of these organisations have followed a ‘generalist’ approach to different sectors, investing in individual businesses based upon their own merits rather than following a sector-based ‘thesis’.

As a result of the Covid epidemic many sectors that have traditionally been very attractive to outside investors such as restaurant chains and high street retail are suddenly found to be very much more difficult, which in turn means that other areas are comparatively attracting much more interest from investors. These include the obvious areas such as healthcare and digital businesses but also now highlighted are manufacturing, construction and consultancy businesses that previously may have been lower down on financial investors’ lists.

4. Increased focus on building and running successful cross-border businesses

Business in the UK has changed more than many of us can remember as a result of Covid and Brexit. The effects of the epidemic have been significant across many different countries, testing supply change and prompting big changes to working practices.

Whilst the adoption of the changes has been extremely difficult in many circumstances, it has also led to opportunity for greater collaboration across borders, opportunity for local providers to compete with low cost outsourced suppliers, and also corporates seeking to ensure they are best placed to benefit from wider changes over the coming years.

As a case in point, our increased collaboration (including via our partner firms in the International Corporate Finance Network) with overseas organisations has led to an even greater number of cross-border discussions on transactions where boundaries and borders are becoming less and less important when it comes to communicating and collaborating on buying, selling and investing in businesses.

5. Company owners are rethinking their priorities and plans for the future

There are of course the personal stories that we hear every day. We have all been affected by recent events as a result of the pandemic and to a greater or lesser extent will continue to be for a very long time. This has caused many individuals to ask questions about their priorities, to find the energy for a change in direction or to decide that they would prefer to take a more balanced approach to personal risk.

This reflection may be a catalyst to explore how best to address all the aims of an entrepreneur – financial and personal as well as what is best for the company that they are leading. Coupled with discussions about changing tax rates, particularly those associated with wealth such as Capital Gains Tax and Inheritance Tax, we are again seeing this as a catalyst for increasing levels of discussion about the future.

Fortunately, unlike previous downturns, this time there are more options available than ever and plenty of buyers and sellers keen to talk.

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What our clients say

  • QuestGates is a complex business and we had very set ideas of what we wanted to achieve. Rockworth were patient and supportive throughout and were always available to support and help, challenging where need be but always looking for solutions not problems. We could not have achieved the investment that we wanted without their advice.
    Chris Hall
    CEO, QuestGates
  • Thank you all for your excellent and urgent support in finalising our deal.  I appreciate that it was all rather late in the process - but you never flinched once. Your ability to get up to speed so quickly and provide great intervention and solid guidance is a credit to your professionalism. I was particularly impressed with your patience in providing expert help at a time when our stress levels were running high.
    Stewart Hollington
    Director, Analytical Services International
  • Time and time again as we went through the process, I was relieved that we had Rockworth at our side. They have excellent contacts and were able to unearth a wide range of suitors for the business.
    Neil Cameron
    Co-founder, CHL Software
  • The relationship we have built with Rockworth over the last five years helped to lay the foundations of a smooth and successful transaction. Selling a company I have built up over the last 20 years comes with some mixed emotions. It has been quite a journey. But I am delighted with the outcome that Rockworth helped to achieve, and I am looking forward to seeing the business continue to thrive under new ownership.
    Dr Donald Gibb
    Founder, The Birth Company
  • Thank you for your hard work and trustworthy advice on this deal - your focus and patience have been incredible. I've been hugely impressed at all stages on how you've guided me through this process, and how you've kept cool heads when it must have been very challenging to do so. Extremely happy to recommend Rockworth.
    Andy Crysell
    Founder & CEO, Crowd DNA
  • Thank you everyone at Rockworth for your guidance, advice and pragmatism during what has been a very quick turnaround. It has been a pleasure.
    Andy Whittard
    Managing Director, Cherwell Laboratories Limited
  • Rockworth provided the support, experience and the technical knowledge that we needed to secure a successful sale.  Lawrence and his colleagues are all high calibre individuals, and I would certainly recommend them.
    Alice Watson
    Founder, Porge Research
  • During the whole process the team at Rockworth was always available to answer questions, no matter how banal, and held our hand throughout. I can honestly say that without the Rockworth calm hand on the tiller I am not sure we would have got through it in such an easy manner.  
    David Bilton
    Director, CadCam Technologies Limited
  • We chose to work with Rockworth on the basis of their approach, networks and reputation. Lawrence and his team provided excellent support throughout the entire sale process and enabled the company to achieve an outstanding result. Whilst there was a great deal of complexity at times, it was managed with great care and my colleagues and I enjoyed working together with the Rockworth team throughout. I would have no hesitation in using Rockworth for future transactions and would recommend them very highly to others.
    Martin Lucas
    MD, Kittiwake Developments Ltd
  • I would like to thank you and the team for the major contribution you made to the sale of Cromptons Healthcare. It turned out to be a very complicated deal and I have to say I was staggered by the commitment and effort that was required from us all. I was impressed by both the professionalism and the support that Rockworth provided, which proved to be absolutely essential to me. I had not fully appreciated beforehand just how necessary that support would be.
    Martin Calhoun
    Owner, Cromptons Healthcare Ltd
  • Lawrence, many thanks to you and the members of the Rockworth team for achieving such a great result. It is the best possible outcome we could have achieved, both for ourselves as shareholders, and for our staff, ensuring not just the continuation of the company but positioning it for further growth. We were very pleasantly surprised at the range of potential acquirers that you introduced us to - we had no idea initially of the types of acquirer that you would manage to find from outside our direct industry.
    David Black
    Managing Director, Young Black IS Ltd
  • Rockworth was the ideal guide and partner in our search for a buyer for our company. Their process, insight and people skills were the perfect antidote for our inexperience and were a major factor in achieving the smooth path to our desired outcome. From the start their approach suited our needs as a privately owned company with limited resources to run the business and undertake a transaction. They were invaluable in helping us understand what was needed and what we might reasonably expect. I cannot recommend them highly enough.
    Tim Champion
    Managing Director, H.Squared Electronics Limited
  • From initial preparatory work and advice through the deal process and to final completion, we found your work to be invaluable. I was particularly impressed with the careful and thorough management of the due diligence process: the consistency and detail-oriented manner in which this work was carried out was much appreciated and ensured that the deal completed smoothly, even accounting for the different languages and countries involved.
    Fabio Antoniazzi
    Founder, La Credenza Ltd
  • As a family-owned business, it was extremely important to us that we had an advisor who took care and paid attention to the detail of our business. Lawrence and his team demonstrated real commitment to the deal, both in researching appropriate potential acquirers and following this through in a diligent and extremely supportive manner. I know that without Lawrence and his team we wouldn’t have achieved the successful outcome that we did.
    Rachel Bush
    Owner, Bush & Company Rehabilitation Ltd

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