The incredibly benign market conditions for business owners and managers seeking to exit or raise growth capital look likely to prevail for some months to come. But the investment banking community is looking at the horizon ever more intently to see if storm clouds are gathering.
Acquirers and investors, and the markets generally, have in recent years proven capable of rolling with the blows. Unexpected electoral outcomes for Brexit, Trump and Macron highlight what a volatile world we live in, while emerging superpowers flex their muscles and traditional allies look beyond historical relationships. Yet equity markets have marched on, seemingly confident that a strong US economy and a more fragile recovery in Europe will sustain market momentum.
This will eventually end when one unpredicted event too many triggers the inevitable crisis of confidence. Investors' willingness to 'price-in' risk rather than not transact will find its natural limit. When that happens, the M&A market cycle, traditionally five years from peak to peak, will reassert itself. We are now in year five!
However, two structural themes mean that sellers and boards may not need to head for cover quite yet. First, the ferocity of the global financial crisis means there is still considerable momentum behind strategic acquirers looking to make up for the 'lost years' between 2008 and 2013 by aggressively promoting their acquisition agendas and exercising their strong balance sheets. Our experience shows no let-up in these groups' appetite to purchase high-quality assets.
Second, the tidal wave of private equity (PE) capital shows no sign of abating; tens of billions of fresh capital have been raised in the past few years, and it all needs a home. Provided debt market participants, also benefiting from an influx of capital and a bewildering spectrum of new providers, remain focused on deploying that cash, demand for companies to back will continue to outstrip supply, and sustain premium valuations.
For owners of successful businesses, it feels as if the time to transact is now. It is always advisable to launch a process with the confidence that comes with a few years of strong profit growth, 12 months' worth of revenue visibility, strong order pipelines and a prevailing market consensus that the macroeconomic outlook looks no worse. If you have been contemplating a deal, kicking it off while the sun is still shining seems like the most sensible thing to do.
The Acquirer Magazine, Summer 2017 issue includes:
- How specialist debt-raising expertise helped to create a market leader in trade windows and doors;
- The sale of The Cotswold Company promises exciting times for the furniture retailer;
- Info-Assure now has access to an international market, thanks to its acquisition by BSI;
- Why are acquirers and investors so keen on companies with Internet of Things expertise? We answer this and other questions; and
- The sale of rail technology company Keyvia involved coordinating companies in the UK, Germany and China.