In 2022, the M&A market was very much a game of two halves. In the first half of the year, deal activity was strong in a continuation of the record 2021 market. However M&A tends to slow during times of macro-economic and geopolitical uncertainty, with some slowing of the market during the second half of 2022.
In early 2023 the short-term economic outlook may impact M&A activity, although the slowdown in the market is far less pronounced than initially expected, as private equity funds and banks in particular begin to regain their confidence. Traditionally institutions are more cautious in times of economic uncertainty, while Corporates have remained active in pursuing strategic M&A throughout the second half of 2022 and is expected to continue throughout 2023.
We are expecting a number of 2022 trends to continue in 2023, with implications for shareholders and companies who are considering M&A activity in the coming year.
1. Private equity-backed companies will increasingly look to acquisitions as a way of complementing organic growth, as private equity funds will see investment in their current portfolio as a lower-risk means of deploying capital. In 2022, we advised on the sale of Intelligence Fusion to Sigma7, a USA private equity backed acquirer, and expect M&A interest from both domestic and overseas investee companies to remain strong in 2023.
2. Private equity will increasingly look at partnering deal types, with a combination of derisking for shareholders and growth capital for continued growth and positioning for a future trade sale. These deal structures allows private equity funds to deploy capital in a lower risk transaction, with existing management team continuing to drive growth. In 2022, we advised scarlettabbott on securing investment from LDC, and expect these deal types to become the prominent private equity transaction in 2023.
3. Private equity will increasingly focus on sectors with high levels of recurring revenue and strong underlying fundamentals, in particular in digital services and Software-as-a-Service business models. In 2022, we advised on a number of transactions in the technology space, including LDC’s investment in the £85m Aspire transaction, the growth capital fundraise for Notify, and the Synova-backed Management Buyout of Mallcomm.
The Cavu team are highly experienced and we are able to advise clients on key matters which ultimately drive value. We would be delighted to meet to discuss your plans and aspirations and how M&A can help achieve your goals.