THE WONDERFUL WORLD OF DEALS
Andy Parker | Partner, Cooper Parry Corporate Finance
What’s been happening?
Once everyone worked out which way was up at the start of the first lockdown, we’ve found a way to progress deals. In fact, businesses which have been resilient through the pandemic have proved highly attractive, attracting aggressive competition and commanding high prices.
Businesses which have been highly stressed by Covid have done the right thing by focussing on cash and survival – essential for them but not appetizing in the deals market.
Which sectors have proved resilient?
Whilst there’s winners and losers in each sector, what has been clear is that some sectors, backed by global trends of demographics, big data, innovation and technology have proved attractive:
Healthcare services and its frequently forgotten sister, social care, is driven by massive underlying demographic changes which seem inexorable and, with funding support maintained and grown, they have retained their attraction to investors. We saw this first-hand as we advised on two successful deals in the sector: the sale of Bryn Melyn Care; and the MBO of Bespoke Health & Social Care.
Healthcare products and devices are again driven by demographic change but also one of the twin mega trends of technology. Whilst the pandemic and closure of some hospital services have caused short-term challenges for some, we have seen some real ingenuity in flexing businesses to adapt to the new normal with work on vaccines, ventilators and PPE really shifting the game.
Plato’s phrase “necessity is the mother of invention” has rarely been more evident as innovation and creativity have jumped at us from all sides. Investors love technology-enabled businesses – businesses which see a real need and use technology well to address that need. And, during the pandemic, we have seen many tech-enabled services adapt to the crisis by developing new services that people need in the new world or finding new technology to help them deliver the same service safely and more efficiently. These too have been attractive during lockdown.
What happens next?
The coronavirus crisis is not going away any time soon. Nor is the cost to the economy going to improve quickly. Somewhere along the line, we are going to have to pay for this. But how?
If interest rates are kept low for a long time, it will keep the cost of servicing the debt low, which is good. However, it will probably also mean that inflation is low and hence the debt does not get eaten up by inflation, meaning it will be around for a long time.
The other methods of cutting the debt pile are slashing government spending – perhaps not that far to go after a decade of austerity – or increasing taxes.
Last year, we saw the first attack on favourable tax rates for entrepreneurs with the reduction in Entrepreneurs’ Relief from a £10m band to £1m; but we still have the historically generous rate of CGT at 20% on the balance.
Is this under threat? Many think yes. In the past we have seen capital gains taxed at the highest marginal rate or then steps down from that rate like taper relief.
Can you do anything about it?
There is still, just about, enough time to sell part or all of your business before the end of this tax year. What you will need, is clear advice, experienced advisors and a plan that looks at the business in the short and longer term to ensure that you are doing the right thing.
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