UK M&A and business growth finance in an ever changing world

11 October 2017

Background 

Ongoing political events in the UK and the USA have undoubtedly affected the outlook for UK M&A activity. We should also not forget that there are ongoing issues in France and Germany, despite the recent election results, and all this just at the time when Brexit negotiations are starting to take centre stage. Therefore, there are genuine reasons to be cautious about the potential level of deal activity in the UK. However, in an ever changing world, there are also some major positives to consider.

Why be positive about UK M&A?

Fundamentally the UK has several longstanding, unique selling points from a M&A perspective:

  • A strong tradition of entrepreneurial drive;
  • A long history of inbound and outbound M&A activity;
  • A deep culture of corporate transparency;
  • Creative funding structures;
  • Our global language;
  • Our independent legal system, which is admired throughout the world.

In addition to these longer term positives, there are also some current, very tangible positives for M&A:

  • Incredibly cheap debt;
  • Corporate cash piles at record highs;
  • Weak sterling, thus making UK assets far cheaper for foreign buyers;
  • £50 billion of private equity dry powder looking for a home in the UK.

The key drivers to sustained M&A activity

There are three key areas which will influence the positives outlined above.

  • Future trading relations with both the EU and the rest of the world;
  • Access to, and retention of, talent;
  • Capital availability.

Future trading relations 

Although market sentiment plays a major part in determining the levels of M&A activity, if the UK’s future trading relations end up meaning that our companies can be more nimble on the global stage, then we could actually see more cross border deals over the coming years, not less. If you take this positive view of the future, there will be some fantastic M&A opportunities for strong management teams to exploit in the UK and overseas.

Talent recruitment and retention

Talent recruitment and retention is a major, and often limiting, factor for all business owners and this is also true from an M&A perspective. Access to talented, non-UK based personnel will inevitably be influenced by developments over the next couple of years as discussions over our exit from the EU and our trading relations with the rest of the world become clearer. However, the UK has a strong tradition of attracting top quality talent and the freeing up of the restrictions we face as a member of the EU just may work to our advantage in the longer term.

Capital availability 

Since the credit crunch, both the UK and global economies have been through a period of change and uncertainty. Governments have been forced to take action to bolster their local economies and stimulate growth through both fiscal and monetary policy. High street banks have come under huge pressure to change in terms of both regulation and performance. Banks have had to re-focus their lending criteria in order to increase reserves and comply with capital adequacy requirements. A reduction in available credit via traditional sources has opened up opportunities for other lenders, who are able to offer a range of flexible funding solutions to corporate borrowers. With debt costs at historically low levels, now is a great time to consider your funding options alongside your M&A plans.

Some of the alternatives that we now see are:

  • Private equity and venture capital houses
  • Structured and asset-backed lenders
  • Credit funds
  • Bonds and private placements

All of the above are realistic alternatives to the high street banks, depending on each business’s specific funding requirements. Above all business owners need to ensure that they are ready for discussions with lenders once they embark on the process. After all, you only get one chance to make a good first impression with those holding the purse strings.

Listed below are some of the funding issues that you need consider:

  • First and foremost, do you have a healthy, open relationship with your current lender?
  • Do they really appreciate the dynamics of your business?
  • Do they provide expertise that adds value to your current day to day activities?
  • Do they have the expertise and know-how to understand your vision and to help you grow your business?
  • Do your funding facilities provide both the flexibility to support ongoing day to day operations and the necessary headroom to support growth?

Conclusions

It is clear that many challenges lie ahead for corporate UK’s M&A aspirations. However, many of these are of a global nature and therefore out of the control of business owners, examples being the Brexit negotiations and the USA under Trump, as well central bank monetary and fiscal policies.  Strong businesses with focused and adaptable management teams will thrive on the opportunities that arise. Indeed, with funding options greater than ever, funding costs at all-time lows and the UK possessing a number of USPs, now could be just the time to push forward with those M&A plans.

Making contact

If you or one of your clients would like to talk to us about your M&A strategy in general and/or your growth funding requirements in particular, then contact our head of corporate finance, Laurence Whitehead or send us an online enquiry for an initial, no obligation discussion.