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5th August 2021M&A activity in 2021

Helen James specialises in transaction services and corporate finance, dealing with all areas of transaction services, including vendor and purchaser due diligence, acting as reporting accountant for companies looking to list on the Alternative Investment Market (AIM) and preparation of business plans or financial forecasts.

Following a busy start to 2021, Helen shares her analysis on the end to Brexit uncertainty, her predictions for a record year and why client needs continue to evolve…

What is your analysis on the M&A industry in the first half of 2021?

Busy! There is positivity fuelled by the vaccine roll-out and an end to Brexit uncertainty. M&A activity has been busier in 2021 than we have seen in a long time, in certain sectors more than others, for obvious reasons. We have seen activity in sectors, such as commercial property, which may seem surprising. There have also been several e-commerce acquisitions, and tech generally is strong as well as companies linked to pharma.

What impact has Covid had on the industry?

Covid has impacted the number of deals in several ways:

  • The slow down last year means a backlog to some extent, as companies may have sat on their cash over the last 12 months or so – understandably taking a “wait and see approach” to what would happen
  • More businesses in distress which are ripe for acquisition
  • Some SME owners deciding to sell out / retire earlier than maybe had previously planned. The slowdown during Covid has helped some people to re-evaluate and change course!

What impact has Brexit had on the industry?

It was previously the uncertainty that was having an impact, so now it’s done, the removal of that uncertainty is a positive thing, irrespective of whether certain sectors are benefiting or not.

How have the needs of the clients changed in 2021?

There is more of a focus on cash flow and sustainability of earnings. A key focus for M&A is maintainable earnings and whether valuations of target companies are reasonable.

Where deals are valued on a multiple of earnings basis there is a clearer need than before to really dig into those earnings, to ensure they really are maintainable.

The structure of deals now tends to be more back-ended, with less consideration upfront, and more dependent on an earn-out. This allows post-pandemic profits to be brought in as well as FY20/21 profits which are in many cases lower than previously. This deal structure can mean more complicated share purchase agreements and the need to ensure that vendors and purchasers fully understand the metrics on which future consideration will be calculated.

What are the main reasons you are seeing growth for M&A in 2021?

Investment companies / private equity who have not invested too much last year are now needing to make investments and trade buyers who have seen opportunities to expand – for example, companies needing to add a tech/e-commerce dimension to an existing trade may make an acquisition rather than looking to develop those capabilities in-house which will be much slower.

Covid has really demonstrated the need for speed and adaptability in business, and M&A is one way that companies can really fast-track to where they want to be.

Does this vary between sectors? If so, which sectors have seen the most activity?

E-commerce and tech have been particularly busy. Hospitality, leisure and traditional retail have been the quietest for obvious reasons.

What are your predictions for the second half of the year?

Our pipeline work and level of enquiries suggests that the second half of the year will continue as strong as the first. There appears to be no slow down – while interest rates remain low buyers will continue to be able to finance acquisitions, and with future corporation tax rises looming sellers will see this as a good time to get out. Expect new records when it comes to M&A activity this year!

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