Limited functionality available
David Jones, partner at Deloitte, considers the key deal making trends expected in the East Midlands, and the types of businesses that are set to be most sought after.
There is no doubt that 2020 was a year of surprises and, when it comes to dealmaking, perhaps the biggest surprise was that we began the year with a strong deal pipeline. Given the uncertainty of the pandemic and Brexit, the natural assumption would have been that business leaders would sit tight, but we have actually seen the opposite.
The theme of resilience was prevalent throughout last year, and it is this that has driven appetite as we move through 2021. Businesses that have successfully adapted to the pandemic or had the good fortune to be in a COVID-19 resistant sector, have suddenly become hot property. As a result of the reduced pool of potential targets, we are seeing a huge interest from buyers drive prices upwards.
In the East Midlands, we have already seen the gaming sector explode over the last 12 months, and this remains a market set for further growth. Innovation around the monetisation of games, such as cloud-based subscription models will continue to provide growth opportunities for both companies and investors. Likewise, given its importance in the current climate, healthcare and life sciences will remain attractive, especially in the sub-sectors of med-tech, health-tech, pharma and specialist care.
Activity is especially being seen from private equity – after a period of inactivity between March and August of last year, houses have built up a substantial war chest and now need to deploy. As a result, we’re likely to see trade buyers, who are traditionally more disciplined on cost and leverage, increasingly priced out of some transactions as they look to bolster their own balance sheets and manage cash during the latest lockdown. Private equity is more prepared to make greater use of financial engineering, meaning that they can use debt to fund much of the transaction, rather than pay more in equity.
However, we are seeing trade become more opportunistic as companies continue to struggle and have focused their attentions on bolstering digital capabilities in order to be more resilient. While driving value and strengthening balance sheets will remain the priority during the uncertainty, we expect to see trade become more acquisitive in the latter part of the year when hopefully the business environment shows signs of recovery.
While the national lockdown presents challenges, it is hopefully not as damaging as the first. Both companies and investors are now able to rely on their experience and be more resilient, meaning that investment decisions can be made with more certainty than in March 2020. The strong pipeline that we saw at the back end of last year is therefore only likely to accelerate as we move into Q2 2021, as companies look to maximise value and drive growth.
David is a corporate finance advisory partner based in Nottingham and part of our Midlands-wide team. David advises owner managed and private equity backed businesses on corporate transactions including buying or selling a business, equity release, development capital fund raising, and management buyouts. David is experienced across a wide range of industry sectors, but has a particular interest in the healthcare, consumer business and TMT sectors.