Two of our Corporate Finance Partners, Andy Parker and Ben Rookes, sat down to chat about what they’ve been seeing recently in the M&A market, and what they’re expecting going forward into the post-COVID world.
If you’ve got 20 minutes to spare, you can watch their update here. But if you’re a little more strapped for time, we’ve covered their thoughts on the types of deals and sectors that will be attractive below. And it’s only a 2-minute read.
As lockdown loosens, what type of deals will be attractive in the post-COVID world?
There is still lots of PE dry powder – unspent cash that’s waiting to be invested – and if you look back to investments made coming out the global financial crisis, this was a good returns period for those that invested through the cycle.
A lot of PE platform businesses will look for bolt-ons, which makes sense, particularly those that can enhance the existing platform in some way, such as technology, services, or scale – and these may be distressed / turnaround investments.
A number of business owners may consider de-risking to benefit from some of the value in their business and taking on an equity partner to share in the risk / reward journey. And cash-out transactions could be attractive to both investors and business owners.
Business owners who see opportunities in their market may find development capital attractive, too, either to strengthen the balance sheet, or for acquisition opportunities.
What sectors will the M&A activity be focused on?
Attractive assets will have a few key themes.
There will continue to be a strong appetite for businesses with contractual revenues and good visibility of profits. Sectors that have traded resiliently throughout the current crisis will clearly be attractive. As will those powering our new ways of working, either by having technology at the centre of their business offering, or at the very least embracing the technology which has – and will continue to be – essential across many sectors.
Then, there are the sectors that have positive regulatory drivers and businesses that will be well-positioned to react to them because of their knowledge of the space. And of course, strong management teams that have successfully weathered the storm will stand in particularly good stead.
So, where do we think the opportunities will be?
Healthcare has a lot of those features – the positive regulatory drivers, the demand – and we think it’s a relatively safe place to invest, be that in medical products, pharma / pharma services, medtech or various aspects of social care.
Tech-enabled business services and the technology sector in general will be winners. SaaS model businesses were attractive pre-COVID, and we expect them to be even more so now.
Across areas like consumer, leisure and entertainment, there are still some great businesses out there, but they’re facing a lot of challenges. So, we think it will be those that have strong e-commerce offerings that will be attractive.
How do we expect those deals to be priced?
That deserves an article of its own. And you can read all our thoughts here.