Will 2014 see increased M&A activity in the SME market?

Category: Global M&A news

Wed 29th January 2014

2013 was a very good year for Hornblower and the M&A market in general with more deals, higher values and plenty of acquisitive buyers.  A quarter of our deals last year were international with deals concluded in Australia and in Denmark for a US based buyer.

We are very positive about 2014 and here is why:

  1. Positive growth forecasts for the UK in 2014. The latest forecasts project 2.4% growth in UK GDP this year which is the highest growth rate since 2007; with confidence growing amongst business owners and investors looking to expand their businesses, acquisitions represent an immediate means of achieving compounded growth.
  2. Businesses operating in certain sectors have been doing well now for at least the last 3 years and so are able to provide confidence to buyers of their ongoing sustainability despite the difficult trading period over the last 3 years. They are now in a good position to sell and thereby allow business owners to press ahead with their plans to retire or start other projects.
  3. There are numerous active buyers with cash funds available to acquire businesses. Such buyers are less reliant on bank lending and are still looking for better investment returns than cash and property.
  4. When it comes to larger deals, banks are now keen to lend albeit within certain limits and are still under pressure to do so. Banks are also facing increased competition for lending from alternative sources and means of funding, such as invoice finance specialists, new banks in the UK and even crowd funding (though we have yet to see crowd funding used for any of our deals).
  5. Whilst cross border deals are rarer in the smaller end of the SME market, there is increasing demand from international buyers for businesses with revenues of £2.5m+. The relatively weak pound still presents an opportunity for UK company sales though perhaps not for much longer.

 

Which businesses will sell well in 2014?

Whatever the economic conditions when it comes to sales, mergers and acquisitions in the SME market, certain factors hold true. Businesses which sell well typically have the same traits, they:

  • Operate in a niche market with strong barriers to entry
  • Have consistent recurring revenue, with clients often locked in by a service contract
  • Have strong profit margins
  • Demonstrate tangible growth and opportunities to expand

Such businesses include the sectors listed below. This is proven by the acquisitive demand for such businesses that we have seen over the last 3 years or so.

  • Precision engineering for aerospace, automotive, oil&gas and food processing markets
  • IT support and telecommunications
  • Software development and Software-as-a-service (SAAS)
  • Document scanning and archive storage/record management
  • Accountancy practices

We have hundreds of active buyers on our database and consistently receive at least 70 enquiries for each business we market in these sectors.

Good businesses with sound returns will always sell well. It is best to sell while you are still successful and enjoying it.

 

Do you have a business in one of these sectors?

At Hornblower, we like to start dialogue with our clients 2 to 5 years in advance of when you are looking to selling. We are always happy to offer advice on valuation and what performance metrics you need in order to achieve your desired deal value, as well as offer general advice on the various options for exiting your business.

 

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