While last year might have started slow, the merger and acquisition (M&A) market certainly gathered pace as 2014 progressed, snowballing into the festive season with real gusto. And all the signs point towards this upturn in activity continuing over the coming months, making 2015 a busy year for business buyers.
The latest quarterly Private Company Price Index (PCPI) from BDO supports this; analysing the three months to the end of September 2014, BDO revealed that the volume of private equity deals reached 404, a 36 per cent increase on the 296 sales seen in the previous quarter. Furthermore, private equity acquisitions hit a five-year high, increasing 32 per cent between Q2 and Q3 from 81 to 107. Trade buyers, meanwhile, have been laying down more cash for their purchases, with a rise to 10.0x from 8.8x seen by BDO, matched by an increase in deal volumes. Company and private buyers are clearly prepared to pay more to ensure their deals will work for them.
Confidence, as ever, is a key factor underpinning this upward curve and the fact that in October the International Monetary Fund forecast that the UK would be the fastest-growing advanced economy in 2015 only helped in this respect. Moreover, last month recruitment group Manpower also said that confidence among businesses to take on more staff had hit a 10-year high – illustrating companies’ confidence and desire to grow their operations.
The market conditions are clearly right for the M&A market to flourish, with an improving economy and growing confidence coming together to make inorganic growth a much safer and attractive proposition.
The result is that good businesses – established, profitable ones – are now the subject of an increasing amount of attention from potential buyers. And while uncertainty is likely to creep in when the General Election comes around in May, this trend looks to set to remain consistent, at least throughout the first half of the year.
BCMS Corporate, which at the end of 2014 reported its highest number of completed deals since 2008, stated in its annual M&A review: “At a national level, domestic acquisitions between UK companies during 2014 has been vibrant, a trend which is predicted to continue well into 2015.”
As the M&A market becomes more competitive, it is important that business buyers adopt an aggressive approach. Tentatively dipping a toe into the water will not yield useful results; one must commit wholeheartedly to successfully pursue a strategy of inorganic growth. This means exploring the best methods of finding the right acquisition opportunities and then, when due diligence has been carried out on the targets, honing in and proficiently completing the deal.
Whether hunting for a bolt-on acquisition to complement an existing company or searching for a company to buy and grow as an independent venture, a business buyer must look in the right places if they are to find targets that match their specific criteria. What’s more, as 2015 heats up and more individuals and businesses enter the M&A market, the challenge of successfully finding and completing acquisitions is only going to intensify.
Far from putting people off, these market conditions should offer resounding cheers of encouragement for business buyers. The message is clear: the time to buy is now, but those looking to do so must remain committed and aggressive in their approach if they are to succeed.
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