Despite the ongoing economic climate and emergence of the COVID-19 pandemic, the M&A market in 2020 remained strong
The start of 2020 saw an increase in M&A activity as most shareholders and management teams were bullish about the year, following the outcome of the General Election, clarity that emerged regarding Brexit and the anticipated changes that were speculated to be announced in the Spring Budget. When COVID-19 emerged and led to far ranging disruption, deal activity largely stalled as parties took stock of the business impact. The stalling of the deals market was short lived, as UK businesses have proved to be resilient with sectors such as IT services, healthcare, technology and software and e-commerce being winners. This was evidenced by the Hut Group, a leading e-commerce platform listing on the London Stock Exchange in September 2020 and being placed straight into the FTSE 100 with a market capitalisation of £5.4bn.
As the market readjusted to the immediate impact of Covid there were also a number of transactions in the North East market in the second half of 2020 when the deals market continued to push on and showed great resilience. Transactions included Livingbridge’s investment in e-commerce platform Visualsoft, the sale of NBS to Byggfakta Group, and the management buyout of eQuality Solutions, a provider of assistive technology equipment for students with disabilities. Going into 2021, the deals market has remained buoyant driven by the upcoming Budget announcement on 3 March 2021. In the short term, this has led to some accelerated sale processes where vendors are seeking to transact before any potential changes to taxation legislation are announced by the Chancellor in the Spring Budget. At the time of writing, the Spring Budget has not yet taken place. Looking beyond the Budget date, we expect the M&A outlook to remain strong for the remainder of the year driven by high liquidity among both private equity funders and corporate buyers. Many equity funders raised new capital pre pandemic which means there is a large amount of capital looking for a home, making it an ideal time to consider equity funding given equity terms are highly competitive. With the availability of large pools of capital and equity funding, interest in resilient sectors continues to accelerate despite the economic unrest, largely due to these businesses continuing to trade successfully during difficult economic conditions in 2020. Investors are still keen to support businesses with the need for working capital funding, development and growth capital, and funding for businesses to pursue acquisitions to accelerate market share gain. Cavu CF had a very busy 2020 advising on a number of transactions including; advising HIG Capital on the acquisition of Vernacare (from Palatine), advising HIG Capital and Vernacare on the acquisition of the Infection Prevention business of Frontier Medical Group (from Kester Capital), advising LDC on the investment in Connect Health, advising a mid-market private equity funder on a bolt-on acquisition and advising Ladhar Group on the acquisition of Sir John Fitzgerald. 2021 has also started extremely well for Cavu with the completion of a £10m investment into high growth e-commerce business Bazaar Group from Comhar Capital which will enable the acceleration of international growth plans. We expect IT services, healthcare, technology, software and e-commerce to remain strong sectors for M&A and as the impact of the pandemic recedes during 2021, more normal levels of M&A activity to resume in other sectors. We look forward to continuing to support ambitious businesses and management teams throughout 2021 in what promises to be another busy year for M&A.
