Pressures on business have been significant over the past few years, with rising inflation, multiple increases in interest rates, and general subdued confidence in the economic climate.
Despite the ongoing presence of commercial vulnerabilities, it is hoped there are more predictable conditions ahead, with the corporate finance sector continuing to show resilience.
As we pass the halfway point of 2024, it seems an opportune time to consider the shape of the market and its impact on corporate activity.
A view on transactions
Transactions have generally remained robust over the past year, with no negative economic repercussions seen in the SME deal sector, despite the reduction in transactions recorded by the big four accountants and investment banks.
Based on our experience over the last twelve months, we take a closer look at some of these key elements and how they have fared against the challenging financial landscape.
Valuation
Multiples remain resilient, with continued buyer confidence ensuring that a fair price is paid for acquisitions of worth. There has only been a small overall dilution in multiples from the significant headwinds of inflation and the interest rate hike.
We have, however, observed an increase in deferred consideration, a means of managing rising interest costs and allowing more time to generate cashflow, with a reduced amount of the total cost paid upfront and more disbursed post-acquisition.
For the right business, consolidators and financial acquirers continue to accept premiums – particularly where strategic alignment is clear, with the business purchased fitting the buyers’ exact criteria.
With multiples buoyant, and buyers still paying a fair reflection of a business’s value, non-core disposals of smaller business units remain sufficiently attractive for both buyers and sellers.
Buyers
There remain multiple options for buyers to source financial investment, as private wealth and alternatively structured private equity firms compete with more traditional private equity firms in the SME deal market.
A competitive deal market means transaction executions continue to be timely, with dedicated funding typically in place from the outset.
However, more time is being invested by buyers in understanding the business before committing. Experienced buyers are primarily concerned with the commercials of the deal and are solution focused during due diligence.
Sellers
Businesses ready for sale, or en route to achieving this, continue to be the most certain to complete. Understanding buyers’ plans remains key to validating legacy and managing risk with any deferred consideration.
When it comes to alternative deal types, Employee Ownership Trusts (EOT) are becoming more common as an option for vendors with interest in the solution increasing.
Making internal succession plans work through a Management Buyout (MBO) has been increasingly difficult, with a reduction in total deal lending and high interest rates. We have seen the curtailing of succession plans reliant on MBOs and Management Buy-Ins (MBI) that cannot be supported by equity participants.
How M+A Partners can help
Another busy year ahead bodes well for the SME market, and being ready for opportunities – whether buyer, seller or investor remains the key to success.
If you are looking for strategic advice to help buy, sell, or value your business, get in touch using the details below or email enquiries@mapartners.co.uk
For further information, download our Corporate Services brochure.
Corporate Services