Although we are continually talking to the corporate finance community about potential funding opportunities, we thought it would be useful to share a summary of what advisers have been telling us more generally about the economic outlook, particularly given the fast-changing UK political landscape of recent weeks.
Advisers report some regional and sectoral differences, although the overall view is more positive than might be expected given the picture painted by the media headlines. What’s clear is that M&A activity remains high in the lower mid-market as ambitious business see attractive opportunities to expand.
If banks start to become more cautious, then advisers and alternative lenders like ThinCats may benefit as borrowers look beyond their traditional lenders. At ThinCats we have substantial amounts of funding waiting to be deployed and remain very much open for business.
Overall Deal activity
Advisers report that deal flow is at above long-term average levels with the lower mid-market more active than for larger/mid-cap deals. Adviser business pipelines are generally strong through to the end of 2022 and into early 2023.
Rising interest rates have not yet led to a reduction in appetite for transactions although advisers report that some borrowers have reduced their leverage multiples, with signs that high street lenders have become more selective.
PE and debt funds have plenty of liquidity/dry powder to deploy although reduced activity in the large and mid-cap sectors could see debt funds move into the lower mid-market to help deploy funds.
Advisers report that M&A activity remains high along with advice for business exits.
According to those that advise the mid-sized businesses on which we focus, advisers in the North West are currently most positive about their current pipelines. Some advisers report that they are seeing an increase in demand for debt advice from finance directors who have historically dealt exclusively with their incumbent bank. As banks have become more cautious, FDs are having to look to the wider market for their funding needs.
For sponsor backed deals, which are dominated by London and the South East, there has been a reduction in activity for large deals, but the lower mid-market remains very active.
Longer lead times across the board
A common view shared by advisers across the UK was that that deals are taking much longer to complete than 12 months ago as deeper due diligence is required by investors and lenders. This is especially so for businesses in sectors exposed to discretionary consumer spend, interest rate movements, currency exposure or with high energy costs as a proportion of their overall input costs.
It remains to be seen what impact the additional tax hikes and spending cuts heavily flagged in advance of the chancellor’s Autumn Statement on 17 November may have.