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M&A Markets are Awakening – by Tristan Ramus

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This month the Organisation for Economic Co-operation and Development (OECD) announced that the Composite Leading Indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, are showing signs of tentative pick-up in economic activity on UK shores. This is good news. In terms of M&A activity the volumes of deals are still remarkably low, but sentiment across parts of the financial word is that some elements of the M&A market are proving robust against the low growth backdrop.

 

As an investor it is heartening to read such things and as a recruitment business owner, combined with a suitable exit strategy, the options open to you (apart from organic growth) in the expansion of your business are improving.

 

 So what has changed?

 

There is no one reason why the M&A markets are picking up – it is a complex combination of a wide variety of factors. However, when you look them all in tandem you can see exactly why confidence levels are up amoungst the corporate finance community. I have drawn up a list of the reasons I believe are most powerful. You can view the first half of my list below with the second half coming next week:

During a downturn many companies that have remain buoyant have an opportunity to capitalise on a less competitive market

 

  • With fewer companies taking a slice of the market share through decreased revenue performance or liquidation those businesses that have performed well are looking to consolidate their growth trajectory through acquisition.

 

 -  Certain sectors are performing well which makes an attractive purchasing proposition

 

  • Large cash surpluses that were once a buffer against market crashes are now an M&A strength. It remains difficult to source classic lending from banks (e.g. loans), but for those with excess liquidity this is less of a problem.

 

-  Emerging economies and a globalised marketplace mark a good opportunity for expansion

 

  • The global economy may not be stabalising but the emerging economics, such as the BRIC nations, are experiencing the highest number of developed to high-growth acquisitions for the last 7 years. In Hamilton Bradshaw’s case, we focus our investments in UK based companies, but as this information shows, with the right kind of international footprint a business can make a very attractive acquisition.

 

-  Confidence is shifting to developed economies once more

 

  • As I mentioned in the introduction the CLIs are looking relatively positive for the UK. Furthermore, certain high-growth economies are investing in UK business. The foreign perception of the UK financial and industrial climate is relatively stablele, which is very important for driving M&A activity.

 

-  Businesses are looking to sell assets to focus on core business functions

 

  • In the mid-1990s Steve Jobs returned to Apple and worked out how to return his business to profitability – it involved selling off the vast majority of its assets and cancelling development projects. Many businesses are not following the same tact, which marks a great opportunity for those businesses prepared to speculate on growth.

 

 Return to the blog next week to read my concluding list of factors revealing why the M&A markets are awakening and how your business might be well-placed to take advantage.


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