2021 has undoubtedly been one of the busiest years ever in the corporate finance market, with transaction activity and transaction pricing being at historical highs. And while the sale of Newcastle United received the most media attention, Mike Ashley's deal would unfortunately not quite have made it into the Champions' League spots this year - being pipped by larger deals for True Potential, END Clothing, Fairstone and Tombola.
Activity continued to be fuelled by a large pent-up demand among private equity funds, where large fund raises prior to COVID-19 combined with a reduction in strong investment opportunities during the pandemic has created exceptionally strong competition for quality companies seeking investment. The private equity funds have now also been joined by large corporates where a subdued investment activity during 2020 has created strong balance sheet liquidity for use in acquisitions.
Adding to this perfect storm, private equity funds have also taken the benefit of the strong pricing in the market, with a number of private equity exits adding to the overall deal volume. In the North East, LDC exited their investment in Mandata to Tenzing, and Cavu advised BGF on the sale of their investment in J&B Recycling.
The spectre of an adverse change in the capital gains tax regime – first mooted for the 2020 budget – has also contributed to deal flow, as entrepreneurs look to benefit from the comparably lower tax on business disposals. While this change has yet to come into effect, it likely remains on the political agenda for upcoming budgets, and should form part of any business owner’s forward planning.
Cross-border transactions also made a strong return in 2021. Cavu have advised on two sales to overseas buyers this year, and we expect the UK to continue being an attractive domestic market for both UK and overseas corporates and private equity purchasers from USA, ASIAPAC, and Europe.
At Cavu, 2021 has been busy with £14m investment in Bloom Procurement, £10m investment in Bazaar Group, the sale of J&B Recycling to Spanish buyer Urbaser, the sale of Wheelbase to FTSE100 JD Sports plc and several other deals that have not yet been disclosed. Our expectation is that the strong market conditions will continue into 2022, and anticipate that demand and pricing will remain at a historic high for the next 12 months before seeing a return to normal.
Beyond 2022, market conditions are more difficult to predict but at some point we will reach the top of this M&A cycle and both deal volumes and valuations will at that stage plateau or decline. This makes 2022 the perfect time for entrepreneurs and business owners to consider their options and opportunities, and the Cavu team would be delighted to meet to discuss your plans and aspirations and how M&A or private equity can help you achieve your goals.
