Over the course of 2021 and early 2022, dealmaking has continued at a frenetic pace, both in terms of volume and value. We were pleased to find ourselves ranked number one in the country in Experian’s M&A rankings for deals by volume – a sure sign that there is a strong deal pipeline, even during uncertain times. Here, we take a look at the current deal trends, and what we’re expecting to see this year.
2021 was a record-breaking year for M&A, with industries rebounding after limitations arising from multiple lockdowns and wider knock-on effects resulting from the pandemic. Notable areas of strength include tech, manufacturing and healthcare.
This could be due in part to stores of cash reserves built up over the course of the pandemic and the availability of affordable finance, coupled with the need for technological advancements leading to an increase in mergers and acquisitions. These factors suggest the trend will continue in the short to medium-term.
However, while M&A remains an indispensable tool for business growth, the current outlook for the long-term is harder to predict. This is due to higher costs and overheads, rising inflation and global supply chain difficulties along with the current perilous nature of global politics.
We also expect strong investor interest in technology companies specialising in supply chain processes – particularly those able to capture data and analytics. Digital transformation of operations is likely to continue to be a focus and a key driver of deals across all sectors.
Private equity (PE) and venture capital (VC) funds are casting their nets wider too; we think these should definitely be considered as part of an overall business strategy for SMEs. Growth equity investments in particular – where expanding companies receive an injection of capital in return for a non-controlling minority stake – are also growing in popularity. In both cases, there is a demand for mature, high-potential SMEs with a proven track record of growth.
These investments could be vital injections into SMEs, with founders being able to significantly de-risk themselves whilst obtaining favourable tax treatment. Crucially, they would continue to have an equity stake, as well as the ability to carry on with a new partner and jointly grow their business.
Resilience, therefore, is the watchword for deals in 2022. The effects still felt from the pandemic, as well as the war in Ukraine, mean companies are continuing to build resilience against prevailing headwinds caused by strong inflationary pressure; itself a knock-on effect from the difficulties listed above. Shoring-up supply chains is of interest in the M&A sector. We expect the rest of this year to bring deals securing key raw materials and controlling how products are distributed.
“Resilience, therefore, is the watchword for deals in 2022. The effects still felt from the pandemic, as well as the war in Ukraine, mean companies are continuing to build resilience.”
We’ve also seen that many companies are now focusing on onshoring or nearshoring opportunities, particularly those contending with supply shortages in the manufacturing, pharmaceutical and manufacturing sectors, in order to reduce lead times and toughen their supply chains.
This is likely to be due to labour shortages, port lockdowns and even shortages of shipping containers. Onshoring is the practice of transferring an overseas business back to the country of origin, while nearshoring moves a business to a nearby country in preference to one further away – in both cases, these are likely to lessen the burdens associated with transferring goods from overseas.
Looking forward inevitably leads us to legacy planning and exit strategies. In this area, there are a few essentials to cover, such as sorting out unresolved issues, marketing your business in an attractive way to buyers and finding buyers aligned to the interests of your owner. This last point could be solved through employee-owned trusts, which allow employees a share in the company.
We will be exploring these themes and more at our corporate exits event at Morgan Motors on 24 May in Malvern. The event will run from 10am-2pm, providing practical legal and financial advice on future planning for your business, followed by networking and lunch.
If you would like more information please Tim Ward, Partner and Head of Corporate in Cheltenham on TWard@hcrlaw.com
Tim Ward | Partner, Head of Corporate in Cheltenham: M: 07725 241 072
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