West Midlands – M&A overview

There is no doubt that 2020 was a year of surprises, and when it comes to dealmaking, perhaps the biggest surprise is that we began the year with an abundant deal pipeline. Given the uncertainty of the pandemic and Brexit, the natural assumption would be that business leaders would sit tight, but we are actually seeing the opposite.

The theme of resilience was prevalent throughout last year, and it is this that has driven appetite in 2021. Businesses that have successfully adapted to the pandemic, or had the good fortune to be in a COVID-19 resistant sector, have become highly sought after. As a result of the reduced overall pool of potential targets, we are seeing huge interest from buyers driving prices upwards for these assets.

In particular, the region’s technology and logistics sectors have received huge interest from investors, driven in part by the growth of e-commerce and evolving consumer behaviour. The broader technology sector, comprising a wide range of businesses with tech at their heart, is seen as attractive as we all adapt to an increasing digital lifestyle and business environment.

While M&A has understandably been slower in the West Midlands’ traditional stronghold sectors of aerospace, automotive and industrials, as businesses continue to evolve and adapt to the new business environment, we expect to see this slowly begin to recover.

Activity is especially being seen from private equity. After a period of reflection and checking the health of their portfolio companies in March and August of last year, houses are keen to deploy their substantial war-chests. Coupled with their acceptance of relatively high levels of leverage, the private equity community will be competing hard for deals. As a result, we expect to see trade buyers, who are traditionally more disciplined on valuation and leverage, increasingly priced out of some transactions.

Corporates will also be focused on preserving their own balance sheets and managing cash during the latest lockdown, perhaps reducing their appetite for acquisitions. While driving value and strengthening balance sheets will remain the priority during the period of extreme uncertainty, we expect to see trade become more acquisitive as the business environment hopefully returns to normal later in the year. We are seeing all acquirers become more opportunistic as some of their competitors struggle, and many buyers are seeking to acquire digital capability in order to addresses their evolving markets.

While this current national lockdown presents challenges, it is not expected to be as damaging as the first. Both corporates and financial investors are now able to rely on their experience of the first lockdown and we anticipate that investment decisions can be made with more certainty than perhaps they could 11 months ago. The strong pipeline that we saw at the back end of last year is therefore only likely to accelerate as we move into Q2 of 2021.