The Return of Deal Making
Dragon Argent can provide advice and guidance on why conditions for mergers and acquisitions are currently very favourable and how these conditions could present an opportunity for risk aware, not risk adverse leaders:
Funding is Available
Firstly, debt is cheap. The cost of bank borrowing has fallen to historical lows and its availability has increased. Secondly, founders have had time to reflect on the state of their businesses, test if they want to stick with it and if they do, begin to plan where they want to get to. Combined, it means there is cheap borrowing available for newly minted growth strategies.
There is also an abundance of funds within private equity. According to Preqin, a data provider, private equity firms were sitting on $1.48 trillion of cash at the end of June. Given private equity firms have developed additional investment strategies alongside the traditional leveraged buyout, it again means there is capital investment available for ambitious business owners.
Economic Bright Spots
According to a recent article in the FT, the prospect of renewed deal making after the coronavirus pandemic is supported by better than expected corporate earnings and economic data. The FTSE 100 index rose 2.3 per cent last week alone.
But it’s not just the high-profile mega-cap growth companies that are driving this positive performance. According to Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, who was quoted in the FT article, “nearly 80 per cent of companies are beating expectations, with the median company over-performing by 16 per cent,” compared with the usual average of 3 per cent, he added.
M&A Appetites
Finally, In June the M&A Leadership Council conducted a survey of 50 C-Level executives and senior corporate development leaders. Respondents include a complete cross section of sectors and company sizes. Some key findings included:
Whilst 51% of respondents said that the current situation had caused them to pause deals, 12% said that late stage deals were still going through and another 12% said late stage deals would go through depending on renegotiation of terms
23% of respondents reported no impact to Q3 & Q4 plans or indeed that plans would accelerate based on opportunistic targets or reduced valuations
Within these positive responses, the objective seems to be for strong businesses with healthy balance sheets to reposition for post-covid realities, innovate or digitalise
Summary
If founders can look past the negative headlines, there are opportunities for well thought through mergers or acquisitions. Looking for businesses who are likely to thrive in the post-covid reality either due to their technology or proposition and who are adjacent to their own offering could be a way to grow out of the economic turmoil we find ourselves in. And as we highlighted, there is a variety of funding options available to achieve this.
Alternatively, if an exit is the best way for your business to navigate the next 6 – 12 months to insure there is cash in the business and a renewed strategy, there will likely be companies interested in strategic acquisitions.
If you’d like to discuss M&A planning, require M&A coaching or mentoring or need legal or accountancy support for an ongoing M&A process, please contact us.