The outlook for M&A in 2011 and beyond
Although 2010 ended on a subdued note for M&A, two recent surveys indicate that confidence is slowly starting to grow again. Figures from Unquote for Q4 2010 showed that there were only twelve completed deals under £130m, worth an aggregate of £300m: this was a record-breaking weak fourth quarter on both counts.
However, Unquote's survey of corporate financiers also revealed that the number of advisers expecting a rise in smaller deal activity was up from 70% in Q3 to 80% in Q4. It would appear that most advisers have stronger deal pipelines than was the case three to six months ago, hence the increased optimism. The current situation is driven not only by economic conditions but also by the length of time that business owners have held assets. As time passes, owners have an increasing desire to realise value by selling.
Meanwhile a survey by Deloitte* has revealed that dealmakers in the UK are confident that business valuations have bottomed out, with more expecting prices to increase rather than decrease. This may have been influenced by recent data showing that debt funding may be freeing up to some extent as the proportion of all-equity buyouts fell to 20% in the second half of 2010, compared to a peak of 45% 18 months earlier.
Chief financial officers also appear to have entered 2011 more buoyant and with less fear about a double-dip recession. The net percentage of CFOs more confident than less about prospects compared to three months previously is over 30%. 32% of CFOs felt that now was a good time to take risk onto their company balance sheet - the highest percentage since the survey started in 2007.
Laurence Whitehead, Corporate Finance Principal at MacIntyre Hudson, comments: "The remainder of 2011 looks set to be a period when UK corporates start to look at spending again, as compared to 2010 which was a year of rebuilding, restructuring and cutting out waste. This focus on expansion gives credence to the notion that the recovery, albeit cautiously, is likely to continue and broaden during 2011, assisted by renewed capital spending and increased private sector recruitment."
According to the survey, more than 60% see overseas as being the main driver of revenue growth, with over 30% seeing emerging markets as the greatest contributor. Some 20% of CFOs plan expansion by acquisition. This rises to over 30% for CFOs with a higher risk appetite, who would appear on the whole to be those with significant levels of overseas earnings as opposed to UK-focused corporates.
*Q4 2010 Deloitte CFO Survey
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