September 27, 2023
While 2023 is far from over, we’re nearing the end of Q3 and we’re sure that in the blink of an eye, we’ll all be panic-shopping for Christmas, and wondering what 2024 will potentially bring.
The team here at Bluebox would like to suggest six key things that we believe will have an influence on the UK M&A market in the coming 12 months:
Access to Capital
At present, S&P Global estimates that private equity is sitting on c.$2.5 trillion of capital that is ready for deployment. With the continued pressure for the private equity community to deploy capital, this ‘dry powder’ will inevitably stimulate activity. Currently, we are seeing a greater emphasis from private equity on a ‘buy and build’ strategy, whereby M&A is focused on bolt-on acquisitions to their existing platforms.
The Bank of England has increased rates 14 times since December 2021, which has seen it increase from a record low of 0.1% to 5.25%. And while we are not alone in wishing that we all signed up for a 10-year fixed-rate mortgage deal in 2021, the increased cost of funding has a negative impact on M&A with many buyers looking to use debt to fund some of their acquisition. November’s decision to hold rates may provide a chink of light and this will inevitably help to calm jitters that apprehensive buyers may have.
Since early mid-2021, inflation has hit both UK consumers and businesses hard.
With higher inflation, we’ve seen consumers cut back on spending and decreases in disposable income, though this has also affected many companies. In October 2022 we saw the annual rate of inflation rise to 11.1%, but since then, we’ve seen it steadily decrease with expectations that this may fall below 5% in October.
With the decrease in inflation, comes stability. Companies can better forecast and control margins, providing stability for buyers and may encourage those, with lower appetite for risk, back into the M&A market.
Key Industry Trends
While there are many key trends in the M&A sector in the UK, we’ve picked a few that we feel are the most prominent.
Firstly, we have seen an increase in the percentage of deals which saw private equity involvement between H1 2022 and H1 2023 by c.2%, rising from c.37% to c.39%. While this may seem small, it does help demonstrate the continued need for private equity to invest.
Telecoms, Media and Technology (TMT) continues to be the sector with the highest level of activity in H1, with c.27% of total deals in H1 being within the sector. There is also some positive news for the consumer sector, with a total of 393 deals, which is a significant increase on previous quarters.
Moving forward, we expect that many markets will see small increases, though the likes of technology and professional services will be the largest sectors in regard to deal volumes. We also expect that companies with strong ESG credentials and secured long-term revenue models will see significant interest from a wider pool of potential acquirers.
2024 General Election
Historically, a key driver for M&A activity within the UK SME market has been general elections, due to the economic policies of each party.
For example, Labour has previously made comments about increasing Capital Gains Tax (CGT), although they did state in March 2023 that they had “no plans” to do so should they win the election. They have also made comments about potentially increasing dividend tax and inheritance tax.
Potential increases on the above may prove to be unpopular with SME business owners, and could again lead to an influx of new opportunities in the market, similar to the increase seen around the changes in Entrepreneurs Relief, where the lifetime limit was reduced from £10m to £1m.
While this may not seem like a driver for M&A, we feel it could be a critical one in the next few years.
As the UK workforce continues to age and companies adjust to the outflow in skilled labour caused by Brexit, we are forced to consider what the impact on SMEs might be.
For example, in recent years we’ve seen the demand for HGV drivers increase, whereas the number of available drivers decreased. This has led to higher salaries, with companies then looking to pass on the costs to their customers.
Now, when we consider a larger issue facing the UK workforce, such as digitisation and the growth of AI, it seems sensible to assume the effect could be greater and more damaging to those companies that are getting left behind.
This could lead to some SME business owners looking to exit, rather than adapt to the changes. It could also lead to a premium being placed on those companies with high-skilled workforces that achieve operational efficiencies through AI.
In conclusion, whilst there has been a slowdown in M&A market over the past two years, we feel that a mix of the above factors could see a strong return in 2024, with more buyers returning to the market and more sellers considering potential options ahead of the election.
Get in touch
As always, we would love to hear your thoughts on this and if you would like to discuss any of the above in more detail, please do not hesitate to reach out here.
An article written by Misha Brooks, Associate Director at Bluebox.
“We were delighted with the services that Bluebox offered us. Bluebox’s attention to detail through their Diamond Programme ensured that we were well prepared for when the business was taken to market and that the sale process itself was managed expertly.
We challenged Bluebox with finding the right strategic buyer and thereafter negotiating a deal that met our requirements. In helping initially to identify and to secure the deal with Mountville Mills they accomplished just that. Communication throughout was excellent and professional, managing each stage of the process. I would have no hesitation in recommending Bluebox to any corporate shareholder or private business owner looking to divest their business.”
Richard Millward, Former Client
“We were delighted with the services that Bluebox offered us. Bluebox were challenged with finding us the right strategic investor and, thereafter, negotiating a deal that met our complex requirements. In identifying and securing the deal with LGC they have done exactly that. The process itself was efficient and smooth, largely due to the excellent communication from the Bluebox team, who also demonstrated excellent experience at managing a very engaging auction process. I would be delighted to recommend Bluebox to any corporate shareholder or private business owner looking to divest a business.”
Helen Dickinson, Former Client
It has been a real privilege working with the team at Bluebox over this last year or so. Bluebox’s attention to detail ensured that we were well prepared for when the business was taken to market and the sale process itself was managed expertly. Starting the process, I had no idea exactly what this would entail and the volume of work that has been produced by everyone and the result reached today is nothing short of brilliant.
Hugh Morris, Former Client
We are delighted with the services that Bluebox was able to offer. They showed an intimate knowledge of a deal cycle, managed a tight auction process and were highly communicative from the start. I would happily recommend Paul and his team to business owners contemplating a sale of their business in the next 24 months. Experience is key and this has paid off for us.
Laurence Seward, Former Client
Aligning ourselves early with Bluebox, and entrusting the team to guide us through their process proved to be a highly rewarding investment from all viewpoints. Bluebox’s support significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years. The earlier the engagement the better so far as I am concerned.
Mike Minett, Former Client
We began working with Bluebox in early 2015 through their Blue Diamond Programme, as we were contemplating an exit. We found that the process focussed our minds on the key areas of growth in the business, and prepared us well for the inevitable rigours of due diligence. During the sale process itself, the advice offered by the Bluebox team was invaluable. We found them to be helpful, straightforward and honest.
David Stokes, Former Client
When selecting our adviser, it was extremely important that they had access to international buyers and were experienced in cross-border M&A. The team at Bluebox proved to be invaluable by identifying a strategic acquirer from America who was not known to us and by negotiating an excellent deal for all parties. I was also impressed with the process management from Bluebox, which ensured that the deal was closed in a timely fashion.
Jeff Weinstein, Former Client
When I first engaged with Bluebox, I was hesitant as to the benefits of using an advisor to firstly, find a buyer for my business and secondly, to get a deal over the line. However, now that the deal has completed with KPM, I can honestly say that the finer negotiation points handled by Bluebox and their overall management of this process has been nothing short of first class. I would be delighted to recommend Bluebox’s services to any entrepreneur contemplating the sale of their business.
Bill Ballard, Former Client
Bluebox worked closely with us over the following six months and helped us to implement some key initiatives which made InferMed a more attractive acquisition target. Once we decided to sell the business, the Bluebox team were very diligent in ensuring that no stone was left unturned. They negotiated expertly on our behalf to ensure we got the best deal possible.
Alan Montgomery, Former Client
The pre-sale planning programme that we signed up for with Bluebox made us develop our strategies and focus on the bigger picture. It proved to be a very rewarding investment from all viewpoints and significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years.
Nigel Parsons, Former Client
I have experienced first hand the value that can be created through highly structured pre-sale planning. It amazes me that it is not something that everyone does. It is so disappointing to see around 90% of transactions collapse before they complete and pre-sale planning will not only enhance your price, but also significantly enhance your chance of a closed deal.
James Caan, Investor
We worked incredibly closely with our advisers who provided expert knowledge of the sale process with which we were not familiar. We were truly delighted with the results.
Marten Nielson, Former Client
We appointed advisers to manage the sales process after we had received a number of unsolicited approaches for the business. I was incredibly impressed by the immense value that could be created by expertly negotiating with a group of already interested parties.
Paul Duckworth, Former Client
I was delighted with the service that the team offered and their real attention to detail. The deal was not without its complexities and it was reassuring to have such experienced advisers assisting me throughout the negotiations.
Peter Bennett, Former Client
Truly delighted with the way my sale process was managed. The fact that the team I worked with achieved such a great multiple is testament to their experience and their ability to create some true competitive tension.
James Averdieck, Gü, Former Client
The team at Bluebox provided invaluable support in negotiating this complex transaction. Their access to international purchasers, and exceptional knowledge of cross border M&A ensured that the deal was concluded efficiently, achieving a highly successful outcome for us all.
Jon Parslow, Former Client
“We selected Bluebox after a fairly long round of evaluating potential advisors because of their scientific, yet challenging approach to maximising value. During our initial meetings they showed us how far short of “ready” we were and consequently we completed more preparation in the early stages which meant we were equipped for what was to come. We were delighted with our choice of Corporate Finance partner. I do not hesitate in recommending Bluebox for any SME to consider.”
Simon English, Former Client
Bluebox provided invaluable advice in managing the negotiations with incoming investors. Their skills in handling these discussions were evident from the outset and the vital interface that they provided between the incumbent team and the incoming investors was truly beneficial.
Henry Braham, Former Client
Bluebox have a professional, dynamic and experienced team that is greatly assisting me with my focus on my exit within the next 24 months. Their structured approach is very refreshing and their ‘Blue Diamond’ programme is adding immense value.
Matt Evans, Former Client
The team at Bluebox provided me with a seamless service from the start of the engagement until our deal was completed. Attention to detail was commendable and their understanding of corporate M&A very impressive. I could not recommend them highly enough.
Victor Lewis, Former client
Having tried to sell my business previously – and failed – I was only too aware of the importance of pre-sale planning. This is a talented team offering a service that most people find out about, but too late.
Simon Hulme, Former Client
Bluebox are a quality outfit. Their access to International acquirers and relationships with the highest quality domestic investors was impressive. My shareholders and I received excellent service from start to finish and it was refreshing to be dealing with a senior team throughout the sale exercise.
Michael Clapper, Former Client
I cannot recommend the team at Bluebox highly enough. Their expert guidance throughout the entire sale exercise resulted in my shareholders securing an excellent deal with which the entire team was delighted.
Mark Rodol, Former Client
I’m really pleased with the service Bluebox provided. The team demonstrated excellent knowledge of the process to follow and led negotiations for the hospital in a way that allowed us to ensure we received appropriate value whilst focusing on reputational risk. Communication and service were of a very high standard.
Steven Davies, Former Client
With Bluebox’s expert advice we were able to find the right buyer that will benefit our business strategically. We’re delighted with the outcome and look forward to starting our new chapter
Clive Hillier, Former Client
The advice offered by the Bluebox team throughout the process was invaluable to the shareholders. We strongly believe that participating in Bluebox’s pre-sale planning programme was a significant driver behind the success of the deal. Their project management and negotiation skills throughout the sale process itself resulted in an exceptional deal being delivered to all parties involved.
Harpal Singh, Former Client