Political events in the UK, Europe and US have raised questions on the outlook for UK mergers and acquisitions (M&A), but there are also very tangible positives at play. With funding options greater than ever and the UK’s strong unique selling points, 2018 could be just the time to push forward with M&A plans.
The UK has several longstanding strengths from a M&A perspective, including its tradition of entrepreneurial drive, long history of inbound and outbound M&A activity, deep culture of corporate transparency, creative funding structures and independent legal system.
There are also some current, very tangible positives such as incredibly cheap debt, record high corporate cash piles, weak sterling and £50 billion of private equity dry powder looking for a home in the UK.
Market sentiment plays a major part in determining the levels of M&A activity, but if the UK’s future trading relations end up meaning that our companies can be more nimble on the global stage, we could actually see more cross border deals over the coming years.
Talent recruitment and retention is a major, and often limiting, factor for all business owners and this is also true for M&A. Access to non-UK based personnel will inevitably be influenced by Brexit discussions. However, the UK has a strong tradition of attracting top quality talent and the freeing up of the restrictions faced as a member of the EU just may work to our advantage longer term.
Since the credit crunch, UK and global economies have been through a period of change and uncertainty. Governments have been forced to take action to bolster their local economies and stimulate growth through both fiscal and monetary policy. High street banks have come under huge pressure to change in terms of both regulation and performance. Banks have had to re-focus their lending criteria to increase reserves and comply with capital adequacy requirements.
A reduction in available credit via traditional sources has opened up opportunities for other lenders, who are able to offer a range of flexible funding solutions to corporate borrowers. With debt costs at historically low levels, now is a great time to consider your funding options alongside your M&A plans.
Some of the alternative funding options we now see are private equity and venture capital houses, structured and asset-backed lender, credit funds and bonds and private placements. These are all realistic alternatives to high street banks, depending on your business’s specific funding requirements. Above all business owners need to ensure that they are ready for discussions with lenders once they embark on the process. You only get one chance to make a good first impression with those holding the purse strings.
Some of the funding issues you need consider are:
- Do you have a healthy, open relationship with your current lender?
- Do they appreciate the dynamics of your business?
- Do they provide expertise that adds value to your current day to day activities?
- Do they have the expertise and know-how to understand your vision and to help you grow your business?
- Do your funding facilities provide both the flexibility to support ongoing day to day operations and the necessary headroom to support growth?
Many challenges lie ahead for corporate UK’s M&A aspirations. However, many are of a global nature and out of the control of business owners, including Brexit negotiations, the USA under Trump, as well central bank monetary and fiscal policies. While there are genuine reasons to be cautious about the potential level of deal activity, strong businesses with focused and adaptable management teams can still thrive on the M&A opportunities that arise.
Laurence Whitehead is the head of corporate finance at accountancy firm MHA MacIntyre Hudson.