Insights 14.4.20 Authors: Philip Bird, Pablo Jorge

Corporate Finance Update – April 2020

Insights 14.04.2020 Authors: Philip Bird, Pablo Jorge

Smaller company mergers & acquisitions (“M&A”) activity remained strong in 2019 despite a challenging macro and political environment. 2020 is likely to see a reduction in activity, but there are reasons to be optimistic.

2019 seems a different world now in light of the COVID-19 crisis, but in these difficult times it is important to remember what life was like, and will recover to in the coming months. The outlook for the rest of this year depends upon how long the crisis continues and the extent of any economic recession. However, as with previous recessions, companies will need to adapt their strategies to the new environment and this will undoubtedly involve M&A activity.

Defensive sectors such as food and healthcare, and associated support services such as logistics and technology, are likely to be strong in a more difficult environment. However, crisis may also drive consolidation in some sectors (eg; retail) simply because of the need to survive. There is also record levels of liquidity amongst investors and this liquidity will need to find a home.

On to the detail now. 2019 was a strong year for smaller company (defined as transactions in the £1-10 million value range) corporate M&A activity in the UK, including late stage venture capital and private equity investment, despite challenging macro conditions (perhaps not as challenging as nowadays’ but nevertheless) dominated by Brexit talks, the general elections in the UK and an increasingly unstable international framework.

Period 1: 1 January 2019 -31 December 2019 Period 2: 1 January 2018 – 31 December 2018
Volume of deals – 621 Volume of deals: 633
Total value – £2.83 billion Total value: £2.82 billion
Median EV/EBITDA for disclosed transactions = 5.90x Median EV/EBITDA for disclosed transactions = 5.29x

Compared to 2018, last year saw a higher volume of transactions in terms of value (£2.83 billion vs £2.82 billion) and slightly lower number of these closing (621 vs 633) which implied higher median EV/EBITDA multiples (5.90x vs 5.29x).

The most relevant data though was that, at the end of 2019, the level of dry powder (capital available to deploy) from both corporate and institutional investors in SMEs in the UK hit a record high of £31.88 billion (£29.77 billion at the end of 2018). (Source: Pitchbook data).

We talk with investors on a daily basis and the mood is one of looking at opportunities on a case by case basis and with a particular interest in resilient sectors that are either less likely to be affected by COVID-19 such as healthcare, technology, business services and software, or where its impact can at least be quantified.

What next?

CBW’s corporate finance team advises shareholders and owner-managers on planning for, and achieving, a successful exit through sale of their companies. We offer a confidential and discreet advisory service aimed at ensuring you achieve the best terms and conditions upon exit from your business. If you are interested in discussing how we can help please contact us.

(Data source: Pitchbook)