Park Place Spring M&A Observations

The 20th of March marked the ‘Vernal’ (or Spring) equinox in the Northern hemisphere. Longer days are here, and we look forward to the bounty of summer.

Professionally, we tend to mark the calendar year with similar milestones –  “Let’s get the deal done by Christmas / Easter / pre-summer holidays” etc. (though maybe for some deals it’s more appropriate to keep adding another milestone date on at the end)! 

Where do we see the deals market as we start the race towards the summer? 

1. Volumes for ‘platform deals’ are down

Empirical evidence will follow, but anecdotally we observe a relatively thin market with ‘platform’ deal volumes down significantly from their post Covid peaks. We suggest this is driven by a number of factors, including: 

Overall, the economy is perhaps best described as flat. Consequently, there are many good businesses experiencing more headwinds than tailwinds. Leading to flat(ish) financial performance, or quite often, simply less predictable financial performance. Both important drivers of M&A.

An understandable degree of nervousness regarding the taxation environment. The notable changes to National Insurance kick in from April. Businesses are still in the foothills of recalibrating their profit and loss accounts to accommodate

To some extent a remaining valuation gap between buyers and sellers.

A key observation we would make is that in this more challenging market, many processes are delivering less buyers and less buoyant valuations than might have been promised at the start. Great price and processes can be delivered for great businesses, but more refined and experienced advice is key. 

2. But ‘bolt-on acquisitions’ for existing platform are up

Against that ‘nervous economy’ backdrop, we are not surprised that business owners and investors are following their money and seeking modest acquisitions of core or closely adjacent businesses. 

There might be some opportunity to ‘buy well’ (in plain speak, ‘cheaply’) for smaller businesses, but really the key driver is minimising risk and doubling down on core business. 

This market is very active and we are confident this will remain so for the foreseeable. 

3. Valuations have returned to something more like historical averages and norms

There has been much talk of values being down. This is undoubtedly true with data suggesting something like a 1x to 2x reduction on average for M&A transactions. 

But important to note this simply returns values to levels more closely aligned with long term averages rather than post Covid peaks which we would suggest were a short-term anomaly. 

Valuation is driven by a number of factors, but growth is central. And growth is perhaps a little harder to find for many businesses right now. 

4. Experienced, independent advice is key

Against this generally subdued backdrop, we are pleased to be very active with completing deals and strong WIP. 

We are confident our fundamental principles of offering hands-on, experienced, and truly independent advice delivers great M&A outcomes, even in challenging markets.