Reflections on 15 years at PEMCF
So what has happened over the past 15 years I hear you ask? I'll give you a brief overview, focusing on deal highlights and what the future holds for the team.
Analysis by Bloomberg suggests it is becoming more difficult to raise debt against sterling income, thus negatively impacting M&A in the UK. However, there are other factors to consider.
The article in Bloomberg based its conclusions on recent market evidence and the difficulty of raising debt against Sterling income. Bloomberg reported $3.8Bn of deals for UK businesses and assets so far in 2019 which is 76% down on the same period in 2018.
They go on to report transactions which have stalled or aborted due to financing risk. Examples given include the Private Equity takeover of British packaging maker RPC Group Plc with Euro and Dollar loans rather than Sterling debt and a couple of recently failed auctions: the sales by Melrose Industries Plc of its powder metallurgy business and United Technologies Group attempted disposal of its Chubb Fire Safety business, both said to have been blamed on reluctant lenders.
Despite recent evidence of Brexit hitting M&A it may not be so bad after all.
Companies may well be deterred from attempting larger deals due to the difficulty in raising sterling debt. And there’s evidence of some Brexit planning being rolled out with stockpiling of goods and relocation of corporate head offices outside the UK.
But these phenomena are only to be seen at the really large end of the market, and smaller deals should hold up.
Why so? Business confidence and liquidity are the key drivers of M&A and whilst confidence may be in relatively short supply, at least in some markets, there is still plenty of cash in the system. Companies and Private Equity firms alike are holding record levels of “dry powder” so the global M&A market is not about to fall off a cliff, even though some think the UK could.
Given all that corporate liquidity smaller deals, especially technology or strategically driven deals, should not be hit as hard, if at all.
There was a noticeable uptick in inbound European M&A activity in Q3 2018, and in the sectors which will remain relatively unaffected by the current tumult this should continue. The difficult bit is predicting which areas those might be! However it’s safe to say that British tech firms, and other businesses with a real edge, market access, or strong business proposition are likely to remain attractive to buyers.
So the Cambridge tech cluster and other areas of excellence should continue to see activity.
Change often leads to opportunity, to capital flows, and to M&A activity. Companies will seek to capitalise on disruptive factors by buying and selling companies.
English law will surely remain attractive to international companies because of its sophistication and predictability.
A hard Brexit is not going to help the value of Sterling, but as we’ve seen post-referendum the lower pound has been a real driver for M&A deals. It seems to have particularly encouraged US, European, and Chinese buyers.