BDO and Business Leader recently partnered up to delve into the world of dealmaking as we move towards the end of COVID-19 restrictions.
The bigger picture
- Stronger than anticipated rebound in mid-market M&A activity in Q4 2020, looks set to continue into 2021
- Deal activity dominated by resilient sectors such as technology, life sciences, healthcare and ecommerce
- The budget delivered a stable capital tax environment allowing business owners to make strategic decisions with greater certainty
It is remarkable how despite all the turmoil and uncertainty, businesses have been able to rethink their way of working, be it manufacturing products in a safe environment or delivering services in a safe and more technology enabled way.
M&A activity has followed a similar pattern, with a fall in deal volumes in Q2 last year as many deals went on hold followed by a swift recovery in Q3. By Q4 deal activity picked up significantly, with resilient sectors such as technology, life sciences, healthcare, ecommerce, logistics and supply chain dominating the deal market.
Ross Bradley, M&A Director at BDO commented: “Q4 of 2020 saw a strong rebound in deal activity and this has carried through to Q1 of 2021. While some of this was a backlog from deals previously put on hold, there was a real sense of businesses moving forward with their strategy with more certainty. Looking ahead, we expect the deal market to remain active with plenty of appetite from investors and large corporates to invest across resilient sectors.”
The adaptation to the new norm for businesses has been assisted by financial support from the government, which helped stabilise the economy and secure jobs. With the furlough scheme ending in September, businesses will need to focus on recovery, rebuilding both profitability and their weakened balance sheets. Chris Marsden, Business Restructuring Partner at BDO commented: “For many businesses, the next 6 months will be critical. Businesses should be using the breathing space afforded by the extension of government measures to assess, plan and implement turnaround strategies, especially where difficult decisions may be required.”
Paul Falvey, Tax Partner at BDO added: “These decisions can be made against a backdrop of a stable capital tax environment at least for the immediate future.”
SECTOR ACTIVITY & KEY DEALS
Understandably, sectors most exposed to COVID-19 such as hospitality & leisure are yet to bounce back in any significant way given the ongoing restrictions. Technology has been the most resilient sector in terms of transaction volumes in the last 12 months, with businesses across all sectors continuing to invest in digital transformation.
Daniel Bond, Transaction Services Director at BDO commented: “The pandemic has driven change in the use of technology to facilitate, inter alia, remote working and increased online consumer activity. Businesses in several sectors have needed to adapt and optimise their use of technology in order to operate efficiently and remain competitive. We have seen significant deal activity involving businesses that provide enabling technologies as a result.”
The last 12 months has continued to deliver deals in the South West market as local, entrepreneurial businesses continue to thrive. The recent sale of T Shirt & Sons, based in Westbury and one of the largest direct-to-garment printing and fulfilment companies in Europe, to Polyconcept North Amercia Inc shows the appeal of quality owner managed businesses to foreign investors. BDO worked closely with founders Jon and Andrew Lunt to find a partner for the business who had the financial power to super-charge growth in Europe and the US.