Door set manufacturer and distributor relocates to County Durham to substantially scale operations and create 30 new jobs.
While at Cavu we still see a historically strong M&A market, and expect this to continue for the next 12 to 18 months, there are now early signs that beyond this horizon trade acquirers may tighten their M&A budgets and private equity may become more constrained as a source of capital. This should be an important consideration for companies and shareholders who are considering a transaction as timing may become an increasingly important factor in that decision.
Any shareholders who are currently considering a transaction would be well advised to ideally do so in the near-term to avoid the combined increased risk of macro-economic factors and potential constraints in the funding market.
The corporate M&A market is expected to continue being strong in the near term, but with potential softening in the medium term. In particular, overseas acquirers are highly active in the UK market, in part driven by the weak pound. However, in the medium term slowing economic growth in the UK may make UK companies less attractive for overseas acquirers, while domestic acquirers will face an increased cost of lending to fund additional acquisitions.
The hardening macro-economic climate creates an uncertain outlook for the private equity market and companies considering raising money from private equity funds. Aside from the obvious risk that a gloomier economic climate creates a harder environment in which to generate strong organic growth, the risk is also that it generates a more structural change in the private equity market which will be felt in the medium to long term. The private equity industry has since 2013 enjoyed the benefits of low interest rates, with investors such as pension funds and sovereign wealth looking to private equity funds as an attractive means of generating their own longer-term returns. As interest rates increase (and the growth prospects of private equity-backed companies decrease), these investors may now start to shift their capital allocation towards lower-yield, lower-risk investment such as Government bonds.
There will always be exceptions to this trend, including for instance the recent 1bn fundraise from Synova Capital (including the £250m Chrysalis fund ear-marked for the lower midmarket) and ever-green funds such as LDC who are less exposed to macro-economic climates. Cavu has a deep knowledge of private equity and M&A markets and can inform on most appropriate sources of capital for a deal, including which funds have recently raised capital and tend to offer the strongest terms. We focus on maximising value for clients whatever we are doing, and our deep understanding of private equity and trade acquirer markets is critical in our ability to repeatedly deliver exceptional outcomes.