M&A Market will return but not as we know it in the short term

Deal flow has slowed as Coronavirus emergency measures continue to impact the economy and business owners focus on securing their own survival and planning how their business will look post-lockdown. In this article Rod Mathers, Head of Corporate Finance and Shona Campbell, Head of Corporate Recovery and Insolvency share their thoughts.


Rod Mathers, Head of Corporate Finance believes that although many transactions were abandoned or paused indefinitely during March and April, the M&A market in Scotland will return but may have a different look to it in the short term. He shares some of his views –

“M&A activity in the short to medium term will look very different to the last few years where we have enjoyed strong deal activity driven by good access to capital for organic and acquisition expansion. The main drivers for deals in the Scottish SME market will include well capitalised companies looking for opportunistic acquisitions and businesses looking to expand or improve their technology capability through acquisition rather than developing in-house. Targets will be businesses in distress and also ageing business owners who had planned an exit over the next year or so and where valuation is not the key factor in their motivation to sell.

“The Healthcare, Med-Tech and BioTech sectors could also be active as a result of demand for their product or service in the current environment. There is still an abundance of Private Equity available in the UK and whilst the short term focus will likely be on their own portfolio, once an element of stability has been achieved PE firms will be in a strong position and will have the appetite to support their portfolio through acquisition.

“I have experienced two previous downturns – the dot.com bubble crash in 2000 and the 2008 financial crisis – and both times the market demonstrated resilience and recovery. However, the current situation is likely to present a whole range of different logistical and technical issues.

“Principals and advisers will be working remotely for some time to come, and travel will be restricted, therefore deals in the short and medium term will largely need to be done virtually which presents issues with due diligence processes and signing documents. Due diligence is likely to be more in depth and will involve a detailed assessment of how the current crisis will impact the target company in the medium to long term. Technology is such that deals can still be done and the virtual world may actually become the norm, however during this transition, transactions will take longer as a result.

“Valuations will also be impacted resulting in sellers who are confident in their own business holding off until normality returns, and businesses that ordinarily would be sellable will be focused inwardly on operational issues and survival. One key message that I would like to stress is that many businesses are resilient and with such a focus being placed on profit improvement, many businesses may come out the other side of this crisis in very good shape.

There are always opportunities, even during a crisis, and companies can pivot and adapt, and form new partnerships whether this is an informal relationship or a formal merger of interests. There are business owners looking for an exit, despite uncertainty around sales prices at the moment, and there are businesses in real distress where a sale may mean some value for the business owner and will secure the longer term employment for staff which has to be a top priority in this current climate. “


Shona Campbell, our Head of Corporate Recovery & Insolvency also shares her views.

“We have not yet seen the fallout from the current crisis but expect to do so soon. Business owners should be planning their way out of the situation to ensure that they have a viable business coming out of the other side to avoid any insolvency or restructuring process. Whilst the future is unknown for many business owners, scenario planning is really important to ensure that appropriate decisions taken quickly based on changing circumstances.

We are advising businesses experiencing financial distress on options that are open to them. There are always opportunities, even during a crisis, and we are helping clients to pivot and adapt, and form new partnerships. There are business owners looking for an exit, despite uncertainty around sales prices at the moment, and there are businesses in real distress where a sale may mean some value for the business owner and will secure the longer term employment for staff.”


Get in touch

Rod Mathers
Corporate Finance Partner

rod.mathers@hlca.co.uk

Shona Campbell
Director of Restructuring

shona.campbell@hlca.co.uk