After a slowdown in M&A activity during the past two years, it appears that dealmakers are expecting a resurgence over the next 12 months. The hope is that deals will start to materialise as confidence grows about how to create value in a new financial reality where the cost of capital continues to be more expensive.
This was a point of discussion at Criticaleye’s virtual Growth Company Forum, held in Partnership with
Yonder Consulting, as 42 percent of respondents to a poll indicated they’re expecting to conduct M&A in the next 12 months. Of course, there is also a degree of caution as attendees at the Forum recognised the fragility of the global economy and the complex geopolitical landscape.
In private equity (PE), high interest rates have slowed down deal activity.
Alastair Mills, Managing Director & Head of European Business Services at international PE house H.I.G. European Capital Partners, said: “The start of 2024 was quiet from a new deal flow and completed deals perspective. In this respect it was not incomparable with the later months of 2020 when we were in the middle of Covid, which … is slightly surprising given there's a lot of pressure on private equity funds to both invest and return capital to investors.”
Jayne McGlynn, Corporate Lawyer and Partner at international firm DWF, agreed: “There is still uncertainty in the market and the level of PE activity has not fully rebounded. From speaking to clients and advisors in the market, all indications suggest that 2025 is going to be a bumper year for M&A, although we've heard this now for the last 18 months – everybody says ‘next quarter’ or ‘next half’. But there does come a certain point when PE in particular will have to dispose of a lot of aged assets and spend that dry powder.”
Criticaleye CEO
Matthew Blagg anticipated consolidation across the corporate landscape. “The drums are beating a bit faster with interest rates coming down, meaning that capital access and debt should become more available,” he said. “A caveat to that is the US election probably softens things because there’s now less certainty about the outcome, which has created a pause in that market. But any stimulation coming out of China will accelerate [deals] from an Asian perspective. Overall, I’d expect there to be more activity next year.”
Financing activity across the capital markets has continued to be subdued across 2024, although London has had a stronger year than it’s given credit for, according to
Tom Attenborough, Head of International Business Development – Primary Markets at the London Stock Exchange. The London market has seen over $25 billion of equity capital raised so far this year, which is three times more than the next nearest European exchange.
This figure also makes London the fifth most active exchange globally by capital raisings in the first half of 2024. Of the ten London IPOs this year, five issuers have joined the Main Market and five have been admitted to AIM, with half of the total new issues coming from overseas.
Tom expressed confidence in a pick-up in activity over the next six months. “Across all the indicators we look at, such as accountants working on IPO readiness, banks preparing businesses to list and companies arranging early look meetings with investors, we've seen a significant pick-up in activity in the second half of this year, compared to the first half.
“While there are still some outcomes that people are waiting for, such as the upcoming Budget, factors such as the base that has been built this year, the growing pipeline and market sounding surveys are indicating that the UK market could also experience a significant uplift into next year.”
Everyone understands how quickly things can shift, but the sense is that deals are going to start coming through, although the recovery is likely to be uneven from an international perspective. Alastair said: “It is interesting that the mood music now feels quite different in the UK when compared with some of the larger continental European economies; this is a relatively recent role reversal after a tough few years for the UK. I’m encouraged by some of the recent UK economic data compared to its large European counterparts.
“The number of business owners looking to exit is significant, with many advisers sitting on all time high backlogs. The individuals that are controlling the timing of those opportunities … are becoming increasingly comfortable that there's sufficient depth in the market to bear the possible risk of launching a sales process. An increasing flow of opportunities should follow.”
Ultimately, there is pent-up demand and the growth agenda can’t stay in neutral for too long, but more investors and Boards are now better equipped to identify and navigate threats.
Matthew concluded: “It doesn't matter whether you're listed or in private equity, capital will continue to be slightly risk averse, simply because you can still make good returns without taking much risk. So I don't think you're going to see a massive change. You will see winners and losers appear faster and that in itself will drive more consolidation.”
Jacob Ambrose Willson, Senior Editor, Criticaleye
