Posted: 14 / 04 / 2022
It has been well recognised that the global merger and acquisitions broke all previous records in 2021, both in terms of deal volumes and overall values, and some have predicted that 2022 will follow in a similar suit – despite the growing market uncertainty.
The pandemic created a bizarre dynamic where measures to support faltering businesses in suffering industries, such as cheap debt, generous HMRC payment terms and lower operating costs, created a supercharged environment for well-capitalised businesses and those in thriving industries to pursue acquisition strategies or attract investment.
Equally, many business owners expedited their exit strategies due to the pandemic stresses, or to take advantage of the deal and subsequent enhanced valuations.
Although the effects of these measures are waning, many businesses are continuing those strategies to expand so we will undoubtedly see increased deal volumes this year even with global geo-political tensions and rising inflation.
In terms of trends that we are seeing in the market, the impact of private equity on the M&A market is particularly apparent, with private equity funds more capitalised than ever before and under huge pressure to deploy those funds into quality opportunities.
Closer to home here at Sedulo, we are still seeing significant activity having taken six opportunities to market in recent weeks at the time of writing. These are a mix of full or partial exits and minority investments, with more of the former echoing the market sentiment that shareholders in many businesses have become either fatigued by the events of recent years, or wish to crystallise some value to provide security against further uncertainty.
In terms of trends that we are seeing in the market, the impact of private equity on the M&A market is particularly apparent, with private equity funds more capitalised than ever before and under huge pressure to deploy those funds into quality opportunities. This either means that PE are making more direct investments but also are more willing to further back portfolio companies to make acquisitions as a means to grow, alongside organic growth strategies. This means that those industries with a heavy proportion of PE-backed companies are particularly active.
Environmental, Social and Governance (ESG) focussed investment funds are becoming more and more prominent and will be a dominant theme in the coming years. These funds may have to work harder to source relevant opportunities but the dynamic should become more level in the future as more quality businesses meet the ESG criteria and we should start seeing that investment propel businesses with those characteristics to the forefront of their industries.
Overall, the unique set of conditions we have all experienced over the last few years, coupled with the appetite for investment and acquisitions in the market generally is leading to more flexible and creative transactions structures.
We see this as a fantastic opportunities for business owners to explore how they could secure investment, fully or partially exit their businesses in a situation where they can have greater control over the outcome and therefore invite a scenario which suits their objectives better than ever before.