Corporate advisers survey shows growing market confidence

In ThinCats’ latest sentiment research involving over 70 advisory firms carried out in March, confidence seems to be returning as interest rates stabilise and business valuation gaps begin to close.

Advisers reported higher levels of pipeline activity, growing demand from businesses (particularly owner managed SMEs) for funding and increasing appetite from both traditional and mainstream lenders.

Growing demand:

Nearly 60% of advisers reported that activity levels were higher compared to 6 months earlier, with only 13% reporting lower levels and 28% reporting no change.

Comparing their current business pipelines to 6 months ago, 59% of advisers stated there was more demand, only 7% stated there was less demand and 34% stated their pipelines were unchanged.

56% of respondents believe that there is growing demand specifically from owner-managed businesses compared to 6 months ago, but there is lingering cautiousness due to interest rate levels and cost of funds.

With a general election looming, we asked advisers what impact that might have on funding activity. The majority think that the result of the election won’t have too much bearing on deal activity, but a significant 39% of advisers believed activity levels would increase following increased political stability and certainty that a new government would bring.

Increasing appetite:

As confidence appears to return and activity in the market increases, the perception is that lender appetite is growing from across the funding landscape.

When asked about different sources of funding, 33% of advisers felt that there was more funding available from banks, a significant increase on the 6% from 6 months ago.

The perception that there is more funding available from non-bank lenders is a positive trend that has continued from our last survey 6 months ago with an even higher proportion of advisers (37% vs 24% last time) reporting increased appetite.

Valuation challenge:

Whilst sentiment is broadly positive, valuation expectations are cited as the biggest constraint to deal activity with Interest rate levels and deal quality the next most significant challenges. This has shifted slightly in the last 6 months, where macro-economic issues were seen as the greatest detractor to deal volumes.

The general view on business valuations is that they either haven’t changed (52% of advisers) or that they have decreased (40%) in the last 6 months, this could be an important driver of deal activity in the months to come as expectation gaps continue to close.

“Our pipeline is strong and we are seeing more and more business owners looking to capitalise on new opportunities. To meet this growing demand we continue to invest and expand our proposition, launching our Agile Capital product in April and announcing a new £300m commitment to supporting growth for owner managed businesses across the UK last month.”