M & A trends-plan for success
After another strong financial year I’ve been looking back at the deals completed by the team here at HURST Corporate Finance, and have identified below the key trends showing how the transactions market is evolving.
Our deals involved all buyer types with UK or overseas trade buyers or private equity consolidators being involved in 90% of our transactions.
Healthcare and food businesses accounted for the majority of our transactions and also commanded the highest multiples, although other sectors such as distribution and manufacturing have proved to be attractive targets.
Sectors such as healthcare and food are seen to have strong fundamentals and have been more “COVID proof” than other sectors with the result they are seen as safe and reliable and this attracts a range of buyers and is driving attractive valuations.
Strategic purchases have also become a more significant feature for us. COVID has prompted company owners to adapt their business models or diversify and, as a consequence, they have sought acquisitions to accelerate new strategies.
Earn-outs more commonplace
Another key development has been a discernible rise in earn-outs as part of the transaction arrangements.
In the past straightforward cash and deferred payments were more the norm, but earn-outs have become increasingly commonplace, featuring in over 30 per cent of our deals.
In our view the key factor driving this trend is that it has become more difficult to assess the true, underlying earnings or the overall state of a company because of the disruption caused by the pandemic and the more recent supply chain challenges. Earn outs protect buyers from this uncertainty while still enabling sellers to maximise value.
Despite the economic uncertainty of which we are all aware and which doesn’t need documenting, I can say with confidence that the deals market remains buoyant.
However, while there is no apparent let-up in activity, it is becoming a little harder to get transactions over the line, with more caution among buyers as they focus in detail on the future.
They are certainly carrying out more rigorous due diligence on prospective acquisitions than we’ve seen in previous periods.
This attention to what I call ‘future-proofing’ is very much to the fore these days.
Potential buyers are running the rule over target companies in more depth, looking at areas such as how the target’s supply chains are holding up, how its management team plan to deal with price increases, and the impact these issues may have on the outlook for the business.
Our key message to owners looking at a sale is to ensure your business is in good shape so as to defend value through the whole deal process.
When you get to the stage of discussing a sale, make sure your house is in order and that you have ironed out potential wrinkles which could have an impact on the valuation of your company.
Owners should also recognise that buyers will not just look at the obvious areas such as accounting/tax data and financial forecasts, but will also carefully examine property issues, standards of maintenance on property and equipment, health and safety and environmental, social and governance standards and many other non-financial issues.
Our corporate finance team has decades of experience in helping business owners who are focusing on a sale to manage valuation and deal structuring, negotiating terms, project management, due diligence support and defending value, and these factors are probably more crucial than ever to a successful transaction.
The earlier in the process that issues are highlighted and dealt with, the better. We are extremely well-placed to identify and tackle these, helping to ensure that you as the seller remain on the front foot.
We’ve been delighted to advise on a wide range of transactions over the past year, and here are just some of the highlights:
· Fortis Pharma Consulting on its sale to Bioscript
· EDM Group on its acquisition of RGF Support
· HCD Economics on its sale to Prime Global
· Red Rose Packaging on its sale to Logson Group
· The Sun Valley Nut Company on its sale to Zertus Group
· Panicium on its acquisition of Binghams Foods Ltd
I would like to say a big thanks to all our clients and our network of fellow professionals for their support but in particular to my fantastic super hard working team.