Reasons to be cheerful

There is plenty to look forward to in 2024 for the region’s corporate finance professionals.

M&A in SMEs remained busy in 2023 but signs of a decrease in confidence have started to spread. Accountants and Corporate Finance professionals can be cynical in nature, too familiar with looking for the trap in the wording of a clause or formula.

However there are many reasons to be cheerful looking ahead to regional M&A in 2024.

1. East versus the rest in 2023

Experian’s MarketIQ review of 2023 revealed some interesting statistics for regional deals. There were 622 deals in the East of England in 2023, slightly down from the exceptional level of 714 in 2022 but in line with the overall UK and Ireland trend. The 622 deals in the East mean that roughly 1 in 10 UK and Ireland deals are occurring in our region.

The overall decrease gives context to why some M&A professionals feel quieter, activity is being measured against a remarkable 2022 which featured firefighting against the pent up demand caused by the period of Covid interruption.

In terms of value, fuelled by the occasional Cambridge mega-deal, the total for the region amounted to £20bn. Behind only London and Ireland in value terms.

2. Access to Capital

The sudden increase in interest rates in late 2022 kyboshed many potential deals, with seemingly affordable debt facilities suddenly appearing to be a high risk investment. Although interest rates may not tumble dramatically, a gentle downward trend or even perceived stability, should fuel optimism and affordability. This will open the doors to many additional deals. In particular, external debt backed MBOs and EOTs should increase in volume as it becomes easier to structure deals of this nature which are attractive to a vendor.

3. The Green Money rush

Sustainability and green investing will continue to gain importance. Even the investors disinterested by these credentials will show enthusiasm when they look to raise debt and realise that green credentials are fast becoming an important consideration for credit departments sanctioning lends.

In this region we are blessed with the technological innovation emanating from Cambridge and the abundant space throughout the region which provides potential for green diversification.

4. An impending election

Perhaps it is strange to highlight political uncertainty as a lever for deal flow. However the UK’s current tax structure means that there is an overall feeling of ‘this is as good as it gets’ as far as capital tax rates for exiting investors.

Rumours of alterations to tax rates and reliefs have plagued the build ups to previous Budgets. This has caused a rush of transactions where Sellers feel they do not wish to run the risk of completing a deal later on, at a currently unknown tax rate.

A great example of this is shown in monthly deal completion statistics maintained by Mark-to-Market (a M&A data analytics platform). The 2020 Budget was held on 11 March 2020, just before Covid became a serious concern for the whole population. Deal completions in March 2020 totalled 412, far above the monthly average of 333 for the preceding year. This is more exceptional than it sounds, as you would imagine that very few deals completed in the second half of March 2020.

If a Budget announcement can cause an increase in Vendors deciding it is time to cash their chips, then a potential change in Government should also cause risk averse owners deciding this is the time to depart. Even if there are no strong rumours of a change in tax rates present.