What's driving the white hot M&A market?
Activity in the UK M&A market is currently at record levels. That seemed inconceivable in the dark days of Spring last year with the country in the grip of Covid when most M&A activity was put on hold. At the time private equity houses and corporate acquirers alike took stock of Covid’s impact on their own businesses and in many cases were having to shore up balance sheets with rescue funding.
However, the market bounced back strongly towards the end of 2020 and that bounce has continued through the course of 2021 with the wall of private equity money coming to the rescue supported by significant overseas trade buyer appetite for high quality UK companies. For many UK entrepreneurs, Covid-19 has been a chastening experience and so many are looking to de-risk financially by selling their businesses either in whole or in part. Additionally, although a bullet was dodged in the March budget this year in terms of a mooted CGT increase, that risk has not disappeared, and many clients are looking to sell now while the going is good on the tax front.
The M&A market boom is very much evidenced by finnCap’s recently announced Half Year results to end September. In that period, finnCap advised on private M&A deals totalling c. £1bn in value, and public M&A deals totalling c. £500m in value – higher than any other year, let alone half year, in our history. We have also closed seven deals with overseas acquirers, notably the sale of Pimlico Plumbers to US firm Neighborly (Backed by KKR) and the sale of Nuapay to an Australian-listed payments technology company for Euro 108 million. We have also just completed the sale of FAI Automotive to the South African company Motus Holdings, a buyer identified by our South African colleagues within Oaklins, the global M&A House of which finnCap Cavendish is a member with representation in some 50 countries globally.
As well as deal volumes being high, deal pricing is also very strong, particularly on the part of US buyers (both trade and private equity) who collectively acquired some 500 UK companies last year and who on many of those deals, outbid their UK counterparts by a significant margin. Interestingly, Chinese buyers are currently not as acquisitive as they have been in past year and Japan is also way down the list of overseas buyers of UK companies, but other countries such as Australia, Canada and a number of European countries have, in contrast, been very active.
Particularly hot sectors in the M&A market include fintech and other tech verticals, AI, data analytics, and cybersecurity. The biotech sector – in which finnCap is a market leader – also saw a major resurgence post Covid, with considerable investment attracted to the sector.
Another feature of the market has been the return of twin track processes with vendors pursuing both a trade sale and an IPO contemporaneously to see which route will produce the best outcome. This is an option for vendors which finnCap is uniquely placed to offer given both its strong capital markets and M&A capability.
Author: Peter Gray