Analysis of the mergers and acquisitions market from KPMG, by Director Phil Scott

At our NWFD Manchester event in March we welcomed Jonathan Boyers, Corporate Finance Partner at KPMG and winner of the 2012 NW Insider Dealmaker of The Year award – to give an analysis of the current M&A Market.

Before the credit crunch the deals market was buoyant, even racy, with companies regularly buying and selling businesses, conducting mergers and making acquisitions.

Looking at the statistics is a good way to illustrate the severity of the change the recession has had on the market, which as you would expect has slowed right down.

In 2007 there was a peak in q2 of 1,400 deals done in Europe topping £160million but by the end of 2008, early 2009 this was down to a record low of just 200 deals conducted at a value of £20 million.

Another big shift in the market is the profile of the buyers. Back in 2007 40% of businesses were being bought by private equity firms, whereas now it is half of that, with private equity houses erring more on the side of caution looking for demonstrably high quality businesses with strong assets.

The number of buyers from overseas, particularly economies not experiencing the recession quite as we are in the UK has also increased from 24% to 35%.

Over the last 18 months we are seeing a gradual improvement in levels of debt, a definite improvement in the prices that businesses are bringing and a tentative, increased positivity in the market.

We are now expecting more businesses than ever wanting to sell, with owners who’d been told to sit tight over the last 5 years now seeing the signs of positivity.

Business owners have more realistic aspirations of their businesses value than perhaps 5-7 years ago but now it is much less common practice to put business for sale on the general market.

Instead sellers and advisers are choosing to preselect groups of potential buyers and conduct pre marketing to gauge interest, a large proportion of recent deals through KPMG have been carried out this way.

Many business owners are open to approaches to be bought even if they are not in a formal selling process and the advice to buyers is to actively target and approach businesses you are interested in, before someone else does.

To summarise;

  • The M&A market is (very) slowly returning
  • Deal volumes will pick up in 2014
  • Owner managers are generally more receptive to approaches
  • Expect more narrow, tailored sale processes this year
  • Trade should still out bid PE but for stronger businesses they want
  • Due diligence has become and will remain thorough
  • Banking is the  major transaction risk
  • There are good opportunities to acquire strategic assets for an acquirer with funds