The deals environment continues to be the best seller’s market we have seen for some time, writes Chris Wilson, Corporate Finance director, KPMG Cambridge.
This is borne out in the numbers, with Experian figures for the first nine months of 2018 revealing that the East of England accounted for almost 12 per cent of all M & A activity outside of London – a significant part of the national picture and testament to the quality of businesses in our region – with aggregate deal values up almost 30 per cent on the same period last year!
Corporate acquirers with strong balance sheets continue to seek strategic acquisition targets. Trade buyers from the US have been active as we’ve seen with Oracle’s acquisition of Grapeshot and more recently UL’s acquisition of Medical Device Usability.
UK corporates are also busy, as demonstrated by Hilton Food Group’s acquisition of Icelandic Seachill and the acquisition of PLASgran by RPC Group.
The Private Equity community is sitting on more dry powder than ever and is looking to the East of England for quality investment opportunities.
Prominent transactions this year include Inflexion’s investment in Lintbells; the acquisition of Mountain Healthcare by Literacy Capital; and LDC’s investment in Right Choice Insurance Brokers.
The region also remains a prime investment destination for Venture Capital (VC) with more than £470 million invested between March and September alone.
Notable deals across the region include the £65 million series B fundraise by Cambridge-based drug developer Artios and the £74m Series B venture funding for CMR Surgical.
Health and pharmaceutical enterprises have continued to attract the deep pockets of VC investors who are placing their money on building the next generation of pharmaceuticals.
With the population in the UK getting older, it is expected that biotech will continue to be a big bet for the foreseeable future. Good news for our region given our global reputation for producing innovative biotech and healthcare enterprises.
Can it continue?
It’s tempting to speculate whether deal activity will start to lose momentum as the macroeconomic and geopolitical headwinds gather pace. In our case, I don’t think so. The overriding desire from acquirers and investors for quality assets is here to stay, and we have an abundance of these.
That is not to say that there aren’t any challenges on the horizon. There is a degree of fragility in the funding environment and the current economic uncertainty could prevail for some time.
Successful businesses will be those that address the challenges head on and which have the financial agility to capitalise on those opportunities which will inevitably arise.
Now is the time for good financial housekeeping. Businesses need to review contracts and model their access to liquidity. Having the right funding structures and financing lines in place – and, where necessary, having alternatives mapped out – should be a priority.
Having sufficient working capital to maintain good cashflow and appropriate hedging in place for things like foreign exchange rates, fuel and commodities, will also be important.
In fact, we are seeing many businesses who have bank facility maturity dates in 2019 and 2020 go early and secure facilities now for the next three to five years to take advantage of attractive borrowing rates and tenures.
It is also imperative that businesses have credit insurance arranged to protect themselves against late payments and from customers going under. And finally, solid business continuity plans need to be developed to help mitigate any major economic or supply chain volatility. Business leaders in the East of England are pragmatic and they appreciate the challenges that lie ahead.
So, what’s to come?
Whether it be corporates with healthy amounts of cash on their balance sheets, or private equity institutions seeking to deploy their war chests, investors from all sectors have been willing to pay the kinds of multiples not seen since before the financial crisis for the types of businesses that thrive in the East of England: fast-growing assets that have a compelling growth story or which use cutting edge technology to disrupt a market. This has kept us very busy at KPMG! Our successfully completed deals this year are an interesting cross-section of the wider market.
While we cannot predict right now how or where things might land over the coming months, we can at least be prepared. And with the support of a mature and established financial services community, the region can emerge stronger and ready for the future, whatever shape it takes.
At KPMG, we can look ahead with confidence knowing there’s a growing selection of further deals in the pipeline – the headwinds are not hitting our region just yet!
And it’s not just our pipeline of work which continues to grow. We have made a number of excellent strategic appointments to our local Corporate Finance team over the last 12 months and I expect this trend to continue.
I am personally really excited about what 2019 has to offer. But we still have plenty to do this year first and 2018 is far from over!
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