At the start of the Pandemic, there was a short, but dramatic drop in dealmaking. Financial investment firms ring-fenced their portfolios, focusing on their stronger companies and divesting others. This was followed by a veritable feeding frenzy in Quarters 3 and 4 of 2020, during which time “SPAC” and “Unicorn” became part of the vocabulary in the M&A world.

Transaction volumes continued to rise in 2021, reaching record highs. But these record years are not the norm. External factors like the impact of the war in Ukraine, Inflation and unsettled economic conditions globally resulted in a slower rate of dealmaking, particularly at the top end of the market with significantly fewer ‘mega deals’ and a slowdown in IPOs.

Are we now returning to a more settled level?

Deals involving the acquisition of privately owned businesses also saw a record year in 2021, and despite market condition, held up well in 2022 with volumes only down by 9.7% over 2021.

In the mid and lower-mid market space, the EvolutionCBS team has seen the extended impact of the Pandemic in many of the businesses we have worked with, particularly for those whose financial years ending in December or January. Thankfully, acquirers and investors have come to recognise this ‘business long COVID’ syndrome and deals involving UK private businesses continue to challenge the doom and gloom merchants. This segment of the market continues to grow, with international investors focusing on smaller deals and trade buyers using strategic acquisitions to deliver growth.

In this context, our deal team here at EvolutionCBS has continued to see a rise in Internationally focused deals, particularly from the USA and Europe. Indeed S&P’s CapIQ Pro Service reported that the UK and Ireland saw the largest proportion of the 1,147 deals made in January this year.

Source: Standard & Poor CIQ Pro. Includes minority investments.

UK-headquartered firms remain Europe’s preferred investment destination of choice; its business environment is extremely favourable to inward investment. Indeed, the UK was 8th (out of 190 economies) in the World Bank’s Doing Business 2020 guide. A favourable exchange rate adds to its attractiveness to inward investors, particularly from the USA and Europe. Business sentiment is also positive; the ICAEW,  one of the largest and most comprehensive quarterly surveys of UK business activity – put confidence at 2.5 on the index for Q1 2023, the first positive reading since Q1 2022.

M&A activity has been gradually recovering since the initial shock of the COVID-19 Pandemic, and there are signs that it is returning to a ‘new normal’. One of the contributing factors is the increased availability of capital, as many companies have built up significant cash reserves during the Pandemic and financial investors have significant amounts of “dry powder” available to deploy into European business investments and acquisitions.

Although transaction volumes at the top end of the market are slowing, the private middle market is more stable with both buyers and sellers becoming more confident.

The Pandemic has caused a significant transformation in various industries, where some businesses have rapidly adapted to the changes and flourished, while others have struggled to survive in the new environment and those businesses, especially in sectors hardest hit not only by the Pandemic but by other external factors, are recovering more slowly.

As a long-established premium provider of business sale advisory services to UK businesses, EvolutionCBS offers business owners a complimentary and confidential discussion on how their specific objectives could be met and provide pragmatic, practical advice on how to begin preparing both themselves and their businesses for future sale or investment.

EvolutionCBS works with owners of UK businesses in any sector, finding buyers from around the world through highly targeted research and supporting clients with dedicated Director-led teams, at every stage of their journey to a successful sale or investment.

If you are an owner or shareholder of a business and would like a no-obligation consultation on the sale of all or part of your business, please email: info@evolutioncbs.co.uk or contact us on Tel: 0118 959 8224.