Nigel Greenaway, Director of corporate law firm Greenaway Scott and M&A advisory specialists Verde Corporate Finance (both part of the GS Verde Group), gives his views on the deals market in the first half of 2020.
Being given the blog topic 'half year review of M&A in 2020' is, it is fair to say, a fairly difficult starting point, in fact 'cheers for that' was undoubtedly the first thought that went through my mind!
In January 2020 I had made a fairly bold prediction that 2020 deal volumes would be considerably higher than 2019........at that point I had not considered 'the impact of a global pandemic and complete lockdown in most major economies' in any of my notes or headings!
With that headline now well and truly considered and factored in, the review of the first half of 2020 does make interesting reading.
The M&A market at the start of 2020 started well enough. Indeed in the first quarter (January to March 2020), the number of announced transactions in the UK was higher than in the comparable quarter of 2019, as can be seen in our Half 1 Deals report (courtesy of data from Mark to Market), with 176 more transactions announced in the first quarter of 2020 compared with the same period in 2019.
So far so good then. The 22% increase in deal volume splitting across a broad range of sectors with consumer and support service transactions making up close to 50% of all deals done, some way ahead of IT service transactions at 17% and financial service transactions at 12%.
Interestingly the last month of the first quarter, March 2020 actually saw the highest number of deals completed of any month this year. I suspect a lot of pipeline deals made sure they cleared and closed before the full impact of Covid-19 really made its mark in the UK.
Indeed during March 2020 I worked on two large private equity backed transactions, the slightly smaller one of which involved a company with manufacturing operations in China that were already being impacted by the shut-down of factories in that country. The deal itself sat on a knife edge for a while before the private equity investor involved decided that it could obtain enough comfort to complete.
If the deal timing had been 1 month further on, we may have had a different result.....
However, the second quarter of 2020 suffered a dramatic drop in deal volumes with April and May stalling badly, as sweeping changes and methods of working gathered huge and unavoidable momentum. June recovered in comparison with April and May, albeit completions were still running at approximately 65% of the same month in 2019.
So was the second quarter of 2020 all bad news for M&A and corporate activity in the UK? Actually, no.
New figures released by EY via its market tracker IPO Eye also show that more than £21bn of funds were raised in Q1 and Q2 on the public markets, representing the busiest first half for follow-on fundraising since 2009, and nearly 40% of all money raised in the European markets in Q2 2020 was raised on the UK markets.
Whilst that increase relates largely to big ticket public companies there was also a significant public market change for well managed growing companies that occurred in the same period.
The NEX Exchange was taken over by Aquis Exchange PLC and renamed as the Aquis Stock Exchange (AQSE)- with its stated aim being to become 'the supportive home for quality growth businesses'.
AQSE have announced some very interesting changes to the way in which it intends its public market to operate, with the segmentation of AQSE to include the Access and Apex markets. So clear public markets specifically designed to enable growing companies to attract institutional engagement and improve liquidity - the AQSE Growth Market.
Vulcan Industries Plc announced its IPO to AQSE on the 1st June 2020, and I suspect it will be one of a growing number to take the opportunity this modern public market presents.
In summary then, it is fair to say that the first half of 2020 has been a 'learning curve' albeit most people I speak to hope that learning 'how to run a business during a pandemic' is a lesson that they would have preferred not to have taken, and also hope never have to apply again!
In terms of the next few months, the signs are actually positive. In fact, it is true to say that my personal experience has been that the pipeline for transactions has started to fill over the last 4 weeks or so and indeed July already looks capable of being a step up from June.
A lot of commentators have already expressed an opinion that deal numbers will increase dramatically in the rest of 2020 and throughout 2021 and a lot of companies are indeed sitting on cash reserves, or are well placed with private equity or public market backing to take advantage of opportunities that arise in the near term future.
The last 6 months have also focused a lot of minds. As the CEO of a multidiscipline professional services Group I can certainly say that we have discussed options and opportunities and are keen to develop, grow and acquire in the near-term future.
The financial crisis of 2008 is the most recent recession and the one that plays in the mind when the term recession is used, but this situation is very different and the market contraction has not been driven by any lack of liquidity in the market.
Fingers crossed that the next 'review of the year' blog I write will have less drama and more 'very good' corporate news!
To get in touch, please click here, and one of our team will get back to you.
Note: Late or unclassified deals mean exact figures may vary.