We are not gentlemen of Japan

Bright spots in a flat M&A Market?

M&A activity is at historically low levels. Thomson Reuters reports worldwide M&A value only slightly above that of 2004 during the recovery from the dot-com implosion. At a UK level Corpfin observed August 2010 volumes 20% below the previous month, and 20% down on August 2009. The fall is greater locally - East Anglia Q3 deal volume was down more than 50% over Q2 and nearly 50% down from Q3 2009. The local trend has been a down turn since Q2 of 2008, with a small rise at the beginning of 2010.


A financial storm of unprecedented magnitude has changed the landscape and toughed up the corporate survivors. But there are signs of opportunities amongst the wreckage. Many businesses have stress-tested their business model and they’ve survived or prospered, creating an opportune time to sell or expand by acquisition. To survive the crisis, companies rapidly reduced stockholdings and cut deep. This didn’t work for all. Some companies failed. Now with competitors removed the survivors enjoy a stronger competitive position. Moreover, buyers with access to cash face a possibly generational opportunity to make strategic acquisitions. There are plenty of targets out there who have reason to sell. Business owners often exit for personal and practical reasons other than maximising value - retirement, health, succession, or the need to make their business part of a large entity to fulfil its potential.


There is a huge build up of resources with which to do deals. The 1,000 biggest companies by market value worldwide have amassed $2.87 trillion in cash and equivalents based on their latest filings according to Bloomberg. Combine this with record low borrowing costs and realistically priced targets and you have a much better climate for deal making – whether you are buying or selling. So if you’ve survived the stress-testing this could be a good time to consider buying or planning your exit.


The prognosis for big business trickles down to a regional level as borne out by our recent experience at PEM Corporate Finance. We have advised on five buy-side deals this year, the MBO of Molecular Dimensions along with the MBO of a document management business, the acquisition of Cammetrics by Xennia, and two further acquisitions in manufacturing and distribution. The trend to cash funded acquisitions is illustrated by Corpfin reporting 53% of all deals to be acquisitions, 63% of which were funded by cash.


Through the recession many business owners have delayed plans for a sale of their business. But it is imperative to have a decent exit strategy and to groom the business to maximise value as the market recovers. Failure to do so will mean that a business is less attractive to potential buyers and will fetch a lower price. The same issues apply if instead of outright sale one is considering putting succession in place through a sale or partial sale in a management buyout. A decent exit strategy or succession plan will consider the personal and corporate objectives of the owner’s current business valuation; the valuation at which the owners would be prepared to sell; business prospects; what drives value in the business; potential types of buyer; how must the business look to maximise sale value; and what could get in the way of an exit or reduce future value.

We are running Business Exit Strategies Seminars to help business owners formulate exit plans and groom their companies for an eventual sale or succession transaction. This continues to be a key issue for company owners. The events are running in November in Hemel Hempstead, Northampton and Brentwood.   Call Hannah on 01223 728280 or email [email protected] if you'd like to book.


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