Getting deals done in a turbulent market

Paul Stout, corporate finance partner at PKF Francis Clark in Southampton, explores the Deals market. 

Looking back on 2023:

With the combination of global deal volumes declining (total UK deals falling by 14%), declining credit appetite from the main banks, the increase in the costs of borrowing and several world events creating some economic turbulence, it would be easy to start to categorise 2023 as a difficult year.

Whilst some of these trends did impact the mid-market, for the most part deal values and volumes remained resilient.

This resilience was due to the large amount of dry powder sitting on corporate balance sheets buoyed by mid-market private equity activity and, like 2022, the funding gap being plugged by non-high street lenders.

What will 2024 bring:

Into 2024, as an election looms with the implicit uncertainty over future Capital Gains Tax rates, I expect deal activity will continue to strengthen.

A number of private equity funds have been raising finance in 2023. Combined with likely easing of interest rates and therefore more leverage available to acquirers, it is likely that there will be plenty of consolidation in markets being driven by well-funded corporates and investors.

Over-achieving market valuations for our clients

To overachieve market valuations, vendors need to spend time preparing a business for a sale (including the use of data analytics) and this is where we are able to drive significant strategic premiums for our clients, even those operating in lower profile sectors of the economy.

It also helps that our M&A team has strength in depth when negotiating challenges thrown up by diligence, in particular maintaining value from offer to completion, an area where considerable value can be lost.

There has been a noticeable shift from buyers to structure deals with an element of risk mitigation, normally through earn-outs.

While accepting a deal with a contingent element needs careful thought, if they are well structured and have appropriate over-achievement clauses, it does give the vendors opportunities to create significantly more consideration.

The rise of AI

I expect to see more detailed diligence on acquisitions, with the rise of AI to support advisors to shine a light on the performance of a business beyond the financial accounting system, for example their CRMs and greater granularity on more modest sized operations.

On the flip side, these same tools can be used by vendors and their management teams to genuinely increase the valuation of the business ahead of an exit or investment rather than just preparing for sale (e.g. by addressing hygiene factors and future diligence information flow).

The costs of implementing are modest and our clients who have adopted them have gained considerable insight and a competitive advantage that will lead to a higher valuation in time.

Our multi-award winning team has consistently been ranked as one of the UK’s most active deal makers

PKF Francis Clark have a fully integrated transactions team who prides themselves on their high completion success rate and getting deals done.

Our approach is to take the time to listen to our clients to understand their objectives, identifying potential problems early and finding creative solutions to overcome any challenges a transaction may expose.

This approach protects value for our client and maximises the chances of a successful deal completion.

For more information 

email paul.stout@pkf-francisclark.co.uk or call 07791 306938. 

pkf-francisclark.co.uk