Despite concerns following the EU referendum, M&A transactions in growth capital markets is on the up in Q3.
According to Jonathan Garbett, director at Kingston Smith Corporate Finance, this is entirely in line with the trends of the last few years. “In the first three quarters of 2016 over £1 billion has been raised by UK private companies in equity cheque sizes of over £1 million. It is really encouraging to see just how robust this market is. Investors and companies have had lots of reasons to pause but they simply continued working on the deals,” he said.
Back in July, when the firm was collating Q2 research, managers of fast growth companies strongly remained rooted in the belief that it’d be “business as usual” post-Brexit. “This is exactly what has been delivered in Q3,” Garbett added.
The sectors that continue to dominate growth capital activity are all things technology and digital, which is why Garbett believes that we will continue to see substantial activity in this area through the rest of 2016 and in 2017. “If you are a growing company with significant activities in the UK you are in the right place with great access to funding.”
Sector transaction review
Around half the transactions fall into the B2B online and technology sectors. “Companies in all sectors that are growing and considering raising funds should assess their intellectual property position and online strategy as these are crucial value drivers for UK companies as far as most investors are concerned,” Garbett explained.
Companies may choose to go public on AIM to source growth capital, which is why Kingston Smith started analysing statistics for AIM as part of its research. The London Stock Exchange provides reports on ‘New Money’, being equity amounts raised on first admission to AIM, and ‘Further Money’ being equity amounts raised by companies already listed on AIM. In Q3 2016, £260 million of New Money was raised in 11 transactions, with an average of £23 million per transaction, and £1.1 billion of Further Money was raised with an average of £2.12 million across 499 transactions.
According to Garbett, there’s still some work to do to understand how the AIM data correlates with their private company data. “It suggests though that while AIM is a great source of equity if you are on the market already, it may be that IPO is not the preferred route where £1 million to £15 million of equity is required by a private company,” he said.
Outlook for 2016 and beyond
Garbett sees the UK as a global leader, rivaled only by the US when it comes to supply of funds and entrepreneurial talent. These Q3 statistics support this. “We also think there are challenges to come. Exchange rates, economic growth and potential “hard” Brexit all figure in the thinking of investors and companies. Notwithstanding those, the prospects for the UK growth capital market in 2016 and 2017 are good.”
Kingston Smith has analysed transactions by UK based companies that involve the issue of less than 50 per cent of share equity share capital to third parties and funds raised of between £1 million and £15 million. The research is based exclusively on data extracted from the Zephyr database of M&A transactions, published by Bureau van Dijk.
“The research aims to capture all transactions by UK companies that fall within the criteria but inevitably we expect that there will be transactions that have taken place but have not been captured,” Garbett said.
It’s important to note that these numbers do not include senior debt and mezzanine debt fund raisings and smaller fund raisings by companies and start-up funding under £1 million. Start up funding is generally very much less than this amount.