Optimism growing amongst Midlands Dealmakers
Attendees:
On 7th February we hosted our first Midlands Dealmaking roundtable at the stunning Orelle Restaurant in Birmingham with a panel of leading Midlands financiers alongside our Senior Director for the Midlands Matt Vincent, Chief Commercial Officer Mike Hackett, Chief Credit Officer Greg Beamish and Head of Transitional Capital Stuart Thompson.
The panel discussed how the Midlands’ deal making market is set to fare over the next 12 months, challenges facing advisers and growing trends in event driven finance.
Buoyant pipelines and growing confidence
According to the Experian M&A report for 2023, the M&A market in the Midlands struggled to quite match the volumes reported in 2022, but still saw strong deal activity last year. Encouragingly for Midlands deal makers, in spite of a 7% reduction in deals, the region still significantly outperformed other regions of UK.
Joe Dyke, Clearwater International Corporate Finance: “We are seeing increasing activity in the mid-market and growing confidence levels from businesses in the Midlands. This is a welcome trend following a long period of uncertainty and we envisage deal volumes will continue to ramp up.”
This positivity was reflected in much of the discussion as advisers on the whole reported robust pipelines of deals, with a significant focus on growing sectors like technology, professional services and healthcare.
Whilst it was acknowledged that deals are taking longer to get done, the market is well served by funders and businesses are keen to avoid further delays to their growth plans.
Pete Talbot, Evolve: “There isn’t a shortage of funding, debt or institutional equity, it’s about finding the right funders for each deal. Processes are taking longer, but businesses and funders are adapting to the challenges created by the wider macro environment and there is an increasing desire to get deals done.”
Despite the challenges of inflation still lingering and the uncertainties brought about by an impending General Election, the market's liquidity, driven by eager investors and a plethora of funds, hints at a promising year for deals.
Roy Farmer, Dains: “Economics are challenging - but the environment is ever changing and we need to just deal with it. Whether it is value expectation, debt capacity or investor appetite, we have to adapt to the conditions.”
A Valuation Challenge
Throughout the conversation, valuation emerged as a pivotal challenge when completing transactions.
Karen Mann, LDC: “Valuations, that's a real debate. We've seen some deals recently in the market where the bidding range is quite significant, and it’s tricky to understand how some of these valuations are being derived. Is it because deal volumes were generally lower last year in private equity and so there is more dry powder? I’m not sure. In some sectors, valuations are still pretty high and so the question is, will they come down? If so, when?”
Educating stakeholders about the intricacies of valuation and ensuring they are aligned with market realities is crucial for success. This requires significant input from financial advisers who have a keen understanding of market valuations, and there are positive signs that the gaps are closing.
James Bailey, Springboard: “Last year there was a value gap, that gap seems to be narrowing.”
The Rise of Employee Ownership Trusts (EOTs)
A noteworthy trend discussed by the panel is the increasing adoption of EOTs, as a viable alternative to more traditional succession plans and exit strategies.
This did bring to light concerns about management incentivization and the long-term viability of such structures, but research generally suggests that employee ownership can boost productivity, improve employee retention, and strengthens performance.
You can learn more about EOTs in our content hub.
How ThinCats is approaching the market in the Midlands
ThinCats has invested significantly in the region over the last year, with senior appointments to our origination, transaction management and relationship management functions, all operating out of our new office in Snow Hill.
Providing clarity to advisers around our products and servicing offering, is fundamental. There is a lot of potential for ThinCats to support ambitious management teams who feel that now is the right time to invest in their growth
Matt Vincent, ThinCats
Our pipeline of opportunity is building, and we are seeing growing confidence, particularly from owner managed businesses who are looking to fund growth, exits or simply clean up their capital structures.
Mike Hackett, ThinCats: "The Midlands is a market where we think there is more growth, and we want to support the infrastructure, support Matt and help mid-sized businesses across the region thrive."
