Andy Moore, Managing Director of Bracebridge Corporate Finance comments on M&A activity and how to plan for an exit post Covid-19
M&A activity was showing a continued upward trend in the early part of 2020, particularly as the uncertainty around Brexit started to lift and we left the EU on 31 January. However, in the first quarter of 2020, 1776 deals involving a UK target company were announced, compared to 1877 in the last quarter of 2019 (Source: Zephyr published by Bureau van Dijk). This decline will be mainly due to a reduction in completed deals in March.
By the end of March, many deals had been put on hold and others had been aborted. From a buyer’s perspective, the concern is whether to deploy cash now on an acquisition, without knowing what the impact is, not only on the target business being acquired, but also on its own business.
For sellers, getting a deal done before Covid-19 hit the UK would have been perfect timing, not to mention getting it done before the Entrepreneur’s Relief (now called Business Asset Disposal Relief) lifetime limit was reduced from £10m to £1m with effect from 11 March.
So, what does this mean for business owners considering a sale of their business in the near future? For the next few months, very little M&A activity is expected, but even as things hopefully start to return to normal, buyers will want to take time to assess the underlying performance of the target business. By the time a buyer has done its due diligence and completed a deal, it is likely to be early 2021 before we start to see a return to more normal levels of M&A activity and deals being completed.
Andy Moore, Managing Director of Bracebridge Corporate Finance commented: “We expect to see a significant upturn in M&A activity later this year, so if you are looking to get your deal back on track, or if you are thinking about a sale in the next couple of years, now is the time to prepare or reassess your exit plan.
This is an ideal time to reflect on your strategy, your business processes and what the next 2 to 3 years could look like from a profitability and cash flow perspective. It is the time to refresh your business plan. This lies at the heart of any good exit plan.
You should assess the direct impact of Covid-19, positive or negative, and ensure this is presented clearly to any future buyer as buyers will be looking at this as part of their due diligence.
You should also give some thought to how your business can learn from the current crisis and how it must adapt. Should the business invest in more technology to become more efficient and productive? How can you change your working practices in the future to become more profitable?
We would encourage all business owners to use the current time to have a good look at their strategy and their exit plan. But at the same time, communication with your customers and employees is critical at the current time. Make the effort to pick the phone up to key customers and staff. Look after the people that will get you back on track in the next few years.
When things do start to return to normality, there will be an opportunity for businesses to secure a successful exit, but this will require advance planning, so start now”.
For further information on how Bracebridge Corporate Finance can assist with your exit plan, please call 0121 231 3135 or email andy.moore@bracebridgecf.com
