According to EY, global M&A is down by 27% by value and 18% by volume in H2 2022 compared to the same period in the prior year.

Nevertheless, in view of the tsunami of ailments facing the market – rising interest rates, super inflation and a looming recession- M&A is showing significant resilience, certainly far more so than capital markets where the IPO market remains, to all extents and purposes, closed for the foreseeable future. M&A volumes may be down on last year, but they have merely broadly returned to pre-pandemic levels. There is still a healthy appetite for M&A from both trade buyers and private equity. In terms of trade buyers, there remains demand from international buyers and the recent fall in the value of the pound certainly helps in shoring up this interest. PE funds still have a huge amount of dry powder to deploy and as most are closed end funds, they don’t have the luxury of sitting on their hands and pulling back from investing until the level of uncertainty recedes.

What is occurring in the market however is a flight to quality with investors focussing on more defensive sectors and businesses which are either recession proof or at least recession resistant.  Sectors such as SAAS, cybersecurity and information services remain very much in favour along with defensive sectors such as healthcare. Medtech in particular, including innovative new technologies such as mRNA, gene therapy and telehealth, continues to attract significant interest. Not surprisingly, given current market dynamics, the energy sector, including renewable energy is also one of the hottest sectors currently.

Other sectors have fallen out of favour. Although deals are still being done in consumer, as the sector most exposed to the forthcoming recession, deal volumes are bound to fall. In spite of this, at finnCap we have successfully completed two notable transactions in recent months: the sale of Barburrito to The Restaurant Group and Virgin Experiences to Equistone Partners Europe.

Accordingly, despite the macro-economic headwinds, we expect to see continued resilience in the M&A market over the course of the next 12 months. Although some entrepreneurs may see selling in midst of the current turmoil as counter-intuitive, deal pricing and buyer appetite remain strong. Entrepreneurs should also be mindful of the outcome of the next UK election two years hence with the likely regime change giving rise to a strong likelihood that CGT rates will increase significantly from their current levels.