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Deal or No Deal?

Deal or No Deal?

Gordon Lane, Managing Director of Seneca Corporate Finance examines some of the features of the 2019 deals market and considers the prospects for 2020.

The North West market for transactions in the mid-market (£5m to £100m) is second only to London in the UK and 2019 ended up being a much better year than many commentators had anticipated.  The volume of deals was slightly down on 2018 (897 in 2018 compared to 831 in 2019), as was the overall transactional value (£13.4bn in 2018 compared to £6.9bn in 2019), although the 2018 statistics are slightly skewed due to two multi-billion transactions.  So whilst statistically 2019 was down on the previous year, the deal volumes still show that there is a strong regional M&A market.

We have had to endure several conflicting influences during the last year. 2019 will no doubt be long remembered, not fondly, for the battle over Brexit and whilst the politicians paralysed government, business was negatively impacted as investors and particularly overseas buyers began to hold back on UK investment.  At Seneca, we have had a couple of deals where there is strong overseas interest at strategic multiples but where the interested parties have effectively drawn a line until the fully consequences of Brexit on business is understood. Deals were further impacted towards the end of the year as the general election was announced and deal activity in the North West and across the UK largely ground to a halt.

Despite these negative factors, 2019 ended up being a good year for Seneca Corporate Finance and for many other North West corporate finance advisers. UK Private Equity was robust and there remains a huge amount of private equity capital available, chasing a relatively small number of transactions. The North West Private Equity market is particularly strong with funders proving highly competitive when looking at quality businesses.  It has been particularly competitive in the £10mto £25m range of equity cheques which has benefited several Seneca clients.  Equally many larger UK corporates, including PLC’s, have been active acquirers of businesses off the back of strong balance sheets and a debt market that offers substantially more choice than ever before.

Certainly, a feature of our year has been the success of some of our acquisitive clients.  CMAC, the UK’s leading tech-enabled transport and accommodation solutions company based in Accrington, has acquired three companies in the last 18 months including one in Spain, as they venture into the European market.  Brickability, another client that has pursued a successful buy and build strategy in building products, has acquired around eight companies over the last couple of years before its successful flotation onto AIM in March at a valuation of around £150 million.

So what does 2020 hold for us all? We still have Brexit uncertainty and until a trade deal is concluded with Europe then that will be a factor for any business that has a significant international element to its trade.  The landslide election result has however, provided a more stable environment for transactions although we, and may business owners, remain cautious about any changes that may be made in the March Budget to Entrepreneurs Relief.  Deal multiples remain strong across most sectors which is likely to lead to considerable deal activity in the coming months as trade and private equity look for the best businesses to invest in.

At Seneca Corporate Finance we have continued to invest and Ian Dawson, an experienced corporate financier, joined the team in January and we have more recently opened a Manchester office.  We have already completed two deals this year including the sale of ESH, a private equity backed business in building and energy management to a newly formed investment vehicle backed by a high net worth investor.  We have three other deals that we expect to complete in Q1 and a pipeline of deals that include sale mandates, acquisitions and fundraisings.  In our view, 2020 should be a better year for transacting than last year unless our politicians let us down.

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