About KPMG Corporate Finance deals
In 2021, it's fair to say that COVID-19 accelerated a change in the market's approach. Across the country we saw deal activity moving at such pace that we're a long way ahead of where we were in 2020, with unprecedented deal activity largely due to pent up demand and a real spike in Q1 2021, as companies rushed to complete deals before a potential change to Capital Gains Tax (CGT).
We are predicting the current tide of deal activity will continue into the first half 2022 before the heat may come off the market in some sectors due to inflationary pressures. Here's what we expect to see in H1 2022.
- Continuing M&A trends including: Low interest rates as well as a strong recovery of the UK economy due to an effective vaccine roll out will encourage strong interest in UK businesses from UK & overseas investors; larger corporates will continue to sell off non-core assets to support their balance sheets & meet ESG pressures; & the IPO market being another strong option for realising value.
- Private equity appetite: The appetite for investment among PE firms is strong, with significant levels of capital ready for the right opportunity – particularly in the tech & tech-enabled sectors. The debt market is very much open for business, and there is still some residual nervousness around potential changes to the CGT regime in the spring budget, which could drive exit levels in the early part of the year.
- Investment in scale ups: In addition to established businesses, there's a swathe of early-stage businesses looking to raise money and grow, particularly in the tech space. We are looking carefully at the fundraising market for these businesses and it's evident that there's a growing need to develop stronger infrastructure in the UK to help these businesses as they look to realise their ambitions.
- Debt Markets: Lenders generally continue to be supportive of businesses in the UK, including funding both organic and inorganic growth plans. However, caution remains in the face of specific sectoral headwinds (e.g. inflation, supply chain issues, etc.) creating increased scrutiny regarding funding opportunities alongside continuing selectiveness over new relationships and wider portfolio choices.
- ESG linked financing: With a continued focus from funders on socially responsible operations, the level of ESG linked financing will only continue to grow through 2022. This creates an opportunity for borrowers to maximise access to the broadest pools of capital to help achieve their corporate objectives through incorporating ESG factors into their financings, while also receiving tangible pricing benefits.
- Attractive sectors: Key sectors that have underpinned the economy during the pandemic - including healthcare, technology, business services, energy and differentiated businesses that are tech-enabled and disruptive – will continue to experience increased levels of M&A activity. We also predict that companies with a clear ESG proposition will continue to attract strong investment.
All signs show that deal activity in H1 of 2022 will continue to be strong. While the outlook on some fronts seems unpredictable, if we've learnt anything over the last 2 years, it's that volatility injects impetus into deals and if one thing is certain for the foreseeable, it's uncertainty. And at the end of the day, high quality businesses will continue to be sought after and investors will look deploy funds and make strategic acquisitions.
Head of Corporate Finance, UK