What is driving the active South West deals market?
Despite the doubts thrown up by Brexit, a General Election, and continued political uncertainty, those working within Bristol’s corporate finance space have seen an extremely active deals market.
With a strong year coming to an end, BLM spoke to experts operating within corporate finance, reviewed the challenges they have faced, and looked ahead to 2018 and beyond.
Senior Partner at KPMG, Andrew Hodgson summarises the last year: “I think the deals market in the last 12 months has been extraordinarily active.
“After the EU Referendum, there was some nervousness about what would happen but the deals market has continued with real pace. The South West is as active if not more active than I have seen in the last 15 years.”
Corporate Finance Partner at Grant Thornton, Trefor Griffith agrees with this sentiment: “The past 12 months have seen a period of great activity for Grant Thornton’s deal team.
“We have advised on more than 20 transactions in the region with an aggregate deal value approaching £1bn.”
Arguably, the prime driver for the sector has been foreign investment, especially from the Far East.
Hodgson continues: “Some people have argued that the UK has become a very attractive place to invest because the currency is weaker and therefore businesses are cheaper to buy. There has been undoubtedly an influx of capital into the UK from Asia and the USA.”
Griffith, agrees with Hodgson’s assessment: “A trend during 2017 has been the increase in the level of cross-border transactions.
“With the current value of sterling relatively low compared to other major global currencies, quality UK assets are considered good value for overseas buyers. This increasing appetite from overseas buyers is driving strong prices for UK businesses.”
In the wake of the EU Referendum, there has also been an influx of member states buying UK companies.
Myles Hamilton, Director at Shaw & Co highlights one of the major South West deals from last month: “There is a good deal of interest being shown in local companies by international buyers. Bart Ingredients for example was acquired by Germany’s largest spice producer Fuchs Group, and we’re also seeing plenty of interest from the US.
“The depreciation in sterling following the EU referendum has no doubt helped here and it’s clear that the UK still represents a good investment opportunity for many foreign companies.”
It is not just the foreign investors that have helped the flurry of deals within the region.
UK-based investors and entrepreneurs have been given the necessary financial support to move within the market.
Investor at BGF, Ned Dorbin, explains: “Banks are being supportive, which is great to see. But we also meet many ambitious entrepreneurs who need larger amounts of long-term equity funding for their growth plans. A combination of debt and equity gives a really solid balance sheet and platform for growth, which results in a lower risk for entrepreneurs.”
This lower risk factor has meant that investors have taken advantage of the opportunities to buy and sell companies within the Bristol region. A trend that looks set to continue.
2018 and beyond
When looking at the immediate future of the market, there appears to be a universal positivity, despite the current political climate.
Andrew is erring on the side of caution, but believes that the South West is strong enough to endure any uncertainty: “I think there is some caution in the market in relation to the consumer sector. I believe that all forms of construction – housebuilding and infrastructure – will see pretty strong growth.
“There is no doubt that there is real anxiety about what a post-Brexit economy will look like. As a region, we are very nimble and resilient.
“The South West is a region that is made up of lots of small businesses and some very diverse sectors so, whatever happens, I think that the South West region will hold up well.”
Ned is especially confident about Bristol’s growing SME sector: “SMEs always provide the volume of deal activity, but the top-end transactions get the bigger headlines. This year we’ve completed a handful of large transactions but many more at the SME end of the market.”
The obvious influx of foreign investment has been the main driver for growth in the deals market and Trefor believes that this will continue to be the case in 2018.
The main sectors that have received interest from abroad have been: hi-tech manufacturing, software, healthcare, food and engineering.
Trefor said: “Despite the current uncertain position over Brexit, we believe the UK will continue to be an attractive market for overseas buyers and we anticipate the number of cross-border transactions in the region will continue to increase whilst sterling remains relatively weak.
“We expect to see the prices for quality businesses continue to remain stable through 2018, buoyed by high levels of cash balances in corporate balance sheets, the availability of relatively inexpensive bank debt, and the fact that many private equity firms have funds to invest.”