The next 12 months represents the greatest opportunity for owner-managers of UK businesses seen in recent memory. Significant levels of available capital, an influx of inbound investment into the UK, as well as interest from international acquirers, and changes in the banking and debt markets mean there has never been such breadth of choice for private businesses and this in turn has created a vibrant corporate finance industry.
Strongest market opportunity for owner-managers this century
There is more choice now for owner-managers of businesses than there has ever been in my career in corporate finance. Whether it be in the private equity funds, in the credit funds, in the public markets, or on corporate balance sheets, there is a huge amount of capital chasing a home and that gives owner-managers choice when it comes to considering their options.
In terms of the fundamentals for the next twelve or eighteen months, the corporate finance market is in reasonable shape due to the sheer volume of capital in the market. This will have an impact on the way the market moves as there is more and more competition from private equity, from the credit funds, from family offices – everyone is chasing yield across their portfolio. In turn, this volume of capital is driving up valuations.
Impact of foreign investment into the UK
One of the strengths of the UK over the last 20 years has been the amount of foreign direct investment it has received, particularly from the US, which has seen the UK as a beachhead into Europe. How this plays out over the next five to ten years is going to be critical. While there’s a lot of noise that goes with the election of Donald Trump in the US, I do think that he’ll prove to be net beneficial for the UK because I think that he will see us as an easier, more straightforward trading partner than the rest of Europe.
Banking and the debt markets
There has been a fundamental change in the debt market over the last five years. Prior to the financial crash, whenever we were looking at a transaction, our senior debt would have been provided by one of the four high street banks: Barclays, Lloyds, HSBC or RBS. However, post the financial crash and post recent European banking legislation, we have now seen over a hundred credit funds set up with a focus on private businesses. If you work on the basis of an average fund having £1 billion to deploy, it is clear to see that there is a huge amount of firepower in the market.
Again, this means that owner-managers have choice. They have the freedom to decide whether they want to sell their business now and get the maximum price in the current market and if so, they may be focused on trying to find a strategic trade acquirer or a private equity house that is interested in their space. However, if they want to raise some capital, either for cash out to shareholders or as development capital within the business, then they may well look to secure that capital from a credit fund. This option simply didn’t exist five years ago. As advisors, it gives us another angle to discuss with our clients – they can generate capital without giving up control and that is key to some owner managers.
Andy Currie is the managing partner of Catalyst Corporate Finance.