Market Turmoil; is M&A still Centre Stage? – Article

With all the recent turmoil in number 10 coming after the shocks of Brexit, Covid and the Ukrainian war, one might ask whether now is a good time to carry out Mergers and Acquisitions (M&A)? The answer is yes – M&A creates synergy and economies of scale (which offsets margin pressure) and shareholder value growth where organic growth is non-existent. The good news is that there remains a lot of ‘dry powder’ amongst investors which is allocated to fund such deals.

Research reveals how important small and medium enterprises are for the UK economy, as businesses that employ between one and 249 employees contribute more than £2 trillion in turnover and employ 44% of the workforce. Avondale operate in the emerging mid-market working with businesses that employ more than 20 people and make profits (after adjustments) of more than £500,000, but typically less than £5 million. A few of these companies are tomorrow’s future Dysons – that is, the next ‘corporates’, therefore with the right strategy these are the businesses which provide great investment opportunities, particularly with limited yields in public markets and property assets.

The City likes Sunak’s message of balancing the books, but that does not ignore the austerity measures that we face or the headwinds to growth that will impact many companies, and ultimately, only the fittest will succeed. M&A is one of the few ways to create positive disruption and growth in stagnant markets, although we suspect that trade buyers will favour investment in technology in the face of rampant inflation before they consider M&A. Technology enables increased margins and productivity and this is a key factor for anyone preparing for sale as technology is increasingly influencing price earnings multiples that can be achieved on sale values.

So, yes, M&A is still centre stage, although we do expect taxes to remain high and question whether the tax breaks on Capital Gains Tax can stay as generous as they currently are. There also remains the interest rate risk which could likewise impact the market.

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