3 March, 2022 - 21:45

Mergers & Acquisitions in the Eastern Region – Hold tight!

Few would have believed in Spring 2020 as COVID-19 ripped through the UK that the following year of 2021 would turn out to be such a buoyant year for the M & A market, writes Ed Savory, Partner with Birketts LLP . In fact, it was a record year and judging by the continued volume of activity it looks like 2022 is on course to smash more records.

In the Eastern Region, the range of deal types has expanded. Whilst traditional sales and purchases of privately owned companies have continued in abundance, there has been a marked increase in the popularity of employee ownership trusts (EOTs) as the market and advisory expertise has matured.

Birketts alone has advised on numerous such transactions taking the likes of Denny Bros, Readie, Fullers (Builders) and the Buckingham Group into an employee owned structure. 

One impact of the surge in EOTs has perhaps led to there being fewer MBOs taking place than might have otherwise happened; that is also due in part to the attention of banks being diverted to delivering Covid related lending i.e. CBILs etc.

SPACs (special purpose acquisition company) are also appearing. A SPAC is a new special purpose company which is formed and floated. Suffolk based EO Charging used a SPAC to list on Nasdaq in Summer 2021.

However, the key feature of the last couple of years has been private equity getting much more interested in East Anglia – realising that in order to deploy their funds, they need to hunt further afield both geographically and in terms of EBITDA.

What is interesting is the style of PE investment which is appropriate – collaborative, straight forward, softer, longer term, partnership based investment seems to be winning favour with East Anglian SME owners over the traditional ruthless style of PE. 

The maturing of ability of advisers in the Eastern region is no coincidence. All the main players (law firms, accountants and corporate finance advisers in particular) have invested in their teams growing a depth of experience and expertise to ensure that many of the deals in the region are handled entirely by locally based advisers, rather than from London or even the Midlands. 

Okay. So it’s been good. Of course not for all sectors (spare a thought for retail, hospitality, leisure and tourism) but professional advisory has been fortunate. 

The ability to work entirely effectively in remote virtual isolation has been an upskilling that is unlikely to occur again. Ever. Tech adoption has been forced upon us which has been a catalyst for efficiencies. 

For example, where previously a due diligence session would have been around a table with large numbers of people – much of this work can be done virtually with specialists coming in and out as and when required. The challenge facing advisers is how to balance virtual with face-to-face – more of that later.

For those of us who have experienced M & A recessions we are thankful and always wary about what is coming next. Forecasting, as Michael Fish found out, is high risk but it does make you focus on the road and prepare for any road bumps – and there will be some – along the way. 

Speaking to other M & A lawyers and corporate finance advisers in the region, pipelines appear to be full. Focus is on recruitment and resourcing as much as it is on winning mandates.

We need to be cautious as inflation is here and interest rate increases are coming – how much and how quickly remains to be seen, but they are coming.

This will impact offers as any leveraged buyer’s cost of borrowing for acquisition funding is going to increase. Targets employee costs will be scrutinised to see whether salary levels are in the right place – it is likely that profit forecasts will need to be modified to account for salary increases. The Governor Bank of England asking people to not ask for salary increases is rather fanciful. 

PE is looking likely to remain competitive as there are only a limited number of appropriate targets for numerous PE houses, which could keep prices and multiples high, especially for brands. 

As always, strong financial and operational management remains key as does a growth story and access to markets. Some owners have been bruised and battered and want out whereas others are experiencing new found resilience and ambition (if we can get through that we can get through anything). 

At Birketts we are going continue our focus on specific growth sectors, further develop niche expertise and build our corporate team across our five offices. 

As alluded to earlier, balancing virtual presence is hard but we are an office based people business. We are adopting a hybrid approach but we know that to provide our colleagues with the highest level of engagement which in turn delivers the best service to our clients, we need to buzz. 

As our offices re-populate and we come out from the Covid cave blinking into a warm spring sunshine it’s being in face-to-face contact with colleagues and clients which brings that buzz. 

So, in short, 2022 is going to be full of buzz. Hold tight.

Feel free to contact Ed by email: edward-savory [at] birketts.co.uk ">edward-savory [at] birketts.co.uk 
or telephone: 01603 756479.

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