Ian Barton, a partner in our Corporate Finance Team provides a brief review of M&A deal activity in 2019 and looks ahead to 2020, providing his thoughts on what might happen.
We have seen in 2019, a complex deal market, with three Brexit extensions and a softening of business confidence to the extent Q2 GDP slipped into negative territory. It’s undoubtedly the case that this has caused heightened caution from business owners committing to deal processes, but also in the banking markets which have noticeably tightened.
This uncertainty though has only had limited impact on the private equity (PE) market where investors have shown continued deal-doing appetite, though more as buyers than sellers in the last 12 months. As investors, PE have mitigated banking reticence by fully funding transactions with a view to re-banking in the near- term to get deals done.
Whilst deals have been getting done by corporates too, they have been somewhat slow and when compared to this time last year, the volume and value of the deals completed have fallen considerably short. The total value of M&A deals in the UK has halved to £150 billion and in terms of the total number of deals completed thus far, we have seen a decline of 12%, which is a significant fall.
Although it’s easy to blame Brexit, it is notable that since 2016, sub-£30 million deals have remained steady quarter-by-quarter, but have shown a notable step-down since the Summer as a combination of political and economic uncertainty has hit business confidence.
What has been encouraging is that we have continued to see deals getting done, despite these challenges, and we have seen a large number of new opportunities looking for advice to kick off processes in the New Year. As a result, looking ahead to 2020, we anticipate that there will be a number of deals coming to market; many of which have been held back over the last six months, and whilst the cautious approach will continue, there remains plenty of appetite in the market for good-quality businesses.
Whilst 2019 has seen the mega-deals largely disappear, mid-market deal doing remained active as many entrepreneurs are driven more by lifestyle factors than macro-economics and Westminster politics. We predict that once business owners see uncertainty finally abate, and banking markets return to usual levels of credit availability, there will be a release of the pent-up deal activity and we will see owner managers with a renewed appetite for growth strategies, acquisitions and exits.
Whilst the world of deal doing rarely runs smoothly, 2020 can scarcely throw up as many bumps along the road as 2019 did and presuming a year of more clarity as well as economic certainty, we expect to see activity levels return to historically comparable levels, if not a little greater as part of the catch up in demand.