In first half of 2021, it's fair to say that COVID-19 has accelerated a change in the market's approach. Across the country we're seeing deal activity moving at such pace that we're a long way ahead of where we were last year, with more deals completed in the pipeline than ever which is largely an indication of pent up demand and in Q1 2021, a rush to complete deals before a potential change to CGT.
So it's no surprise then that almost 3 out of 5 (58%) of those surveyed in our latest Backing Business Ambition Pulse Poll said they are planning M&A activity within the next year, with many citing growth into new markets as the main driver. Meanwhile, a further 21% said they were looking to divest or sell their business over the next twelve months.
We are predicting the current tide of deal activity will continue into the second half 2021, for a number of reasons:
- COVID-19 as a catalyst: Many businesses have been waiting for a few years now for the perfect opportunity to bring in investment or sell. For a lot of business leaders, it was a case of riding out the various macro-economic or geo-political changes that happened – whether that was Brexit, a new government or a General Election – before pushing the button. Perhaps surprisingly, COVID-19 has been the catalyst to put those plans into place. The pandemic has focused minds on the here-and-now for those who might otherwise have delayed their plans until further in the future and now is an opportunity to realise some of wealth which may be tied up in the business.
- Potential tax changes: Many are anticipating a potentially chillier climate for deals after the Autumn Statement, with the prospect of changes to the capital gains tax regime.
- Private equity appetite: With substantial dry powder in reserve, private equity appetite remains strong, which will lead many to consider mergers and acquisitions, management buyouts and bringing on board investors to bolster defences during an uncertain period.
- Continuing M&A trends including: Low interest rates encouraging strong interest in UK businesses from UK & overseas investors; larger corporates looking to sell off non-core assets to support their balance sheets; & the IPO market being another strong option for realising value.
- 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 attract strong investment.
All signs show that deal activity in H2 of 2021 will continue to be very strong. The deals pipeline looks secure and for many companies who have been resilient and even grown through COVID-19, it will be considered a great time to get deals done.
Head of Corporate Finance, UK