M&A and investment landscape

2021 has been a successful year for corporate transactions and direct company investment across the Midlands. In the first six months, there was a 24% increase in deal volumes and 200% increase in deal value at £8 billion (Source: Experian H1 M&A Review). This trend has continued into the second half of 2021 as the perfect storm of record low-cost corporate debt, ubiquitous private capital for investment and larger corporates seeking bolt-on and strategic acquisitions, has meant there is a healthy demand for corporate transactions. The M&A market also benefited from a spike in activity prior to the anticipated March increase in capital gains tax which ultimately never materialised but remains a potential risk going forward.

Simon Heath, Partner at Heligan Group, a Birmingham headquartered corporate finance advisor and private equity investor explained 

“As a boutique investment bank, we have experienced an unprecedented uplift in demand for corporate transactions – 2021 has been a record year for Heligan Group and reflective of the market as a whole. Following lockdown, shareholders of SME businesses have re-evaluated their future strategic ambitions and are seeking investment to either de-risk personal capital tied up in their business or support growth capital development for the post-COVID macro-economic environment.”

Prominence of technology

A rapid expansion and fundamental structural shift in the adoption of technology by consumers and businesses following repetitive lockdowns, has led to the technology sector becoming the most sought after. The appetite of buyers and investors for technology-led businesses is driven by the ability to quickly scale and the high margin, cash generative nature of their models. Within the technology sector, security focused companies, known as SecTech, including cyber security, data, personal and property protection have experienced record volumes and values. Two of the more prominent deals in the region include Freshstream’s investment in the Telford based Smart Water Group and Synova Capital acquiring a stake in the Birmingham headquartered Orbis Protect.

Maximising value and minimise disruption

Despite significant demand drivers for deals, any business seeking investment or a potential sale needs to ensure that it is prepared for a transaction. Buyers and investors have an increased expectation in the preparedness of information to facilitate a smooth and efficient process. The advisory community play a critical role in achieving shareholder aspirations and minimising or eliminating value dilution through investing significant upfront time to understand the business, the market in which it operates and key value drivers through robustly preparing financial data and transaction documents before approaching the market. The key focus areas are financial, legal and tax to ensure that as a deal enters the due diligence phase, nothing untoward suddenly becomes a deal breaker or goes to value.

Dr Tim Grasby, Managing Partner at Heligan Group commented “Access to growth capital has never been more freely available. There are a myriad of debt and equity solutions to meet any shareholder requirement, whether that is to fund short-term growth and strategic change or to meet long-term ‘patient’ objectives but investors and buyers expect businesses to be fully prepared ahead of a transaction process and are often turned off or even decline opportunities simply because information is unavailable or inconsistent with their needs.”

Looking ahead

The M&A market is enjoying consistent growth and the outlook for the next 12 months appears favourable, subject to no economic shocks unravelling the demand drivers of corporates and investors. It is always important to note that the M&A market is cyclical and there are windows of opportunity to undertake transactions. We are fortunate that we are enjoying a prolonged period of deal activity and if businesses are considering undertaking a corporate transaction, now is as good a time as any.