With the publication of our annual deal listing, it’s clear that despite any concerns at the start of the year 2018 actually ended as our busiest year so far. Our London corporate practice remained busy throughout (project finance, capital markets, private equity and M&A), but regional M&A activity accelerated noticeably.
So what does that tell us about the year ahead?
Potential end to entrepreneurs’ relief driving activity
Towards the end of the year I heard more talk of a fear that a future Labour Government would end entrepreneurs’ relief, a relief that provides a generous £10m lifetime CGT relief (down to 10%) on sales of trading businesses. That fear certainly encouraged more businesses to go to market, and is likely to have a continuing impact in 2019.
The positive impact of Brexit?
The Brexit effect if anything seemed to increase deal volumes, with European and overseas buyers identifying quality targets in the UK.
We also saw an increase in MBO’s, in many cases as a succession or retirement plan. Some cases undoubtedly reflected the tax fears mentioned already, but others reflected the relative availability of asset and debt finance and the relative strength and confidence of the businesses.
Growth through acquisition
With 14 acquisitions amongst the 30 published deals we completed in 2018, it’s clear that well managed regional businesses are continuing to grow through strategic acquisitions; organic growth remains a challenge for many, so acquisition is a good option for cash rich businesses or those with a strong balance sheer/banking relationship.
Diligence remains key and the pressure applied by buyers at the risk assessment stage of deals is increasing, which is why planning is critical in order to achieve the headline deal price and avoid an unnecessary drain on management and professional time ; buyers may be willing to pay a good price, but they will not take on risk at the same time. Unless or until the market heats up further, in most cases a preferred buyer (with signed off heads of terms) is in a strong position.
We saw two deals a the end of the year set up by sellers as a competitive bid process supported with Vendor diligence reports. This process sets a timetable leading to best and final bids and applies pressure to buyers not only to bid more, but to complete quickly. There is a risk for sellers (because up front spend increases), but if the competition is high it is a good strategy.
Looking forward, I expect the pace and volume to continue through 2019 assuming no major economic slow down. Deals are increasingly driven by our own pipeline/clients and contacts, and welcoming Helen Mead into our regional partner team (alongside Abigail Owen, Danos Athanasi and Kate Norgett) will increase our ability to generate deals, particularly in Surrey where Kate and Helen will be working together.
Click here to see our 2018 Regional Corporate Deals Summary.