Key deals trends for H1 2024
One of the most significant developments has been the gradual alignment of buyer and seller price expectations. This shift has created an environment more conducive to deal-making, in part due to the need for private equity to utilise the high levels of dry powder and realise returns on existing assets. This does not mean that deals will be easy for all parties - levels of due diligence remain high. As such, the demand for high-quality assets and those with strong evidence of sustained EBITDA progression outstrips supply.
In the current market, high-quality businesses continue to command strong interest and premium valuations. Companies with a strong and predictable customer base, forward revenue visibility with a contractual underpin, good cash conversion, and solid market positions are particularly attractive. These assets tend to move quickly and at high values, driven by the availability of capital and a relative scarcity of top-tier opportunities in the market.
There has been a noticeable emphasis on bolt-on (or buy-and-build) acquisitions. Companies are increasingly looking to expand into adjacent markets or jurisdictions through strategic acquisitions. This trend reflects a forward-thinking approach, as businesses seek to create additional value and strengthen their market positions ahead of potential future transactions. For businesses who do not fall into the "top quartile" category because they are facing operational headwinds or operating in more challenging markets - the deal process, while not impossible, has become more protracted. Both the preparation and due diligence phases are taking longer, as sellers seek to ensure issues are addressed or mitigated in advance of a process and buyers exercise increased caution. This trend underscores the importance of thorough preparation and robust sell-side due diligence materials and setting realistic pricing expectations.
As a result of this closer scrutiny on businesses going through a transaction process, there has been an increase in the demand for services which can add value and reduce subsequent price chips through the due diligence phase. This allows businesses to address points that can deter buyers or reduce the value of the business. As Andrew Howson, PE Transaction Services Partner, notes, “the best prepared companies almost always garner better ultimate deal outcomes given the ability to sustain a competitive process throughout and fewer avenues for value leakage”.
We are seeing rising demand across a number of service to support preparation for a capital event, including:
- Effective working capital management has emerged as a critical focus area. Regardless of immediate transaction plans, businesses are recognising that robust cash and working capital management practices are essential for overall business health and positioning for future deals. Richard Dammermann supports businesses in releasing cash from their day-to-day operations, through practical working capital and cash optimisation changes. He specialises in ‘customer-to-cash’, ‘procure-to-pay’ and ‘forecast-to-fulfil’ cycles along with cash flow forecasting/management, generating efficiency/digitisation, cultural change and training in these areas. Do you have a working capital query? Contact Richard Dammermann here.
- Given the evolving economic landscape, many businesses are reassessing their capital structures. There is a growing recognition of the importance of optimising debt arrangements and ensuring suitable financial guidance. Reviewing your debt structures can present opportunities to "reset" your financial positions and prepare for future growth or transactions. This is particularly true for high value businesses with larger debt structures, such as Real Estate Investment Trusts, also known as REITs. Craig Wilson, who leads our Real Estate Debt Advisory team, specialises in arranging optimal debt financing structures on behalf of real estate clients to support the acquisition, development or refinance of property assets. Contact Craig Wilson here.
- The importance of modelling and data analytics in both operational management and deal processes has grown significantly. There is an increasing expectation, particularly from private equity investors, for robust data analytics capabilities and the ability to substantiate any value story. The demand for this expertise and tools to effectively mine and leverage data, both for day-to-day operations and to support potential transactions, has led to the development of our Data Insights product, led by Janie Reid who leads our Modelling team.
Finally, in general, companies across sectors are actively exploring new technologies, with a particular focus on artificial intelligence (AI) and machine learning. The ability to effectively integrate and leverage these technologies is becoming increasingly important in positioning businesses attractively in the deal environment. Christopher Siswick, from our Digital Team, is focusing on tools that assist business, in particular private equity firms, assess the AI readiness of a business. Read further here, AI and private equity - a new frontier for investment strategies
Looking Ahead
Over the coming months, the deals market shows signs of momentum with no immediate impact from the election results. While challenges persist, the alignment of valuation expectations, coupled with signs of organic growth in many businesses, is creating a more favourable environment for transactions. Highly anticipated reforms to the Listing Rules for capital markets (London Stock Exchange) will see an uptick in listing (IPO) planning interest, although we think it will be 2025 before we see any real momentum in this market space.
For businesses considering transactions in the near to medium term, the key takeaway is the importance of thorough preparation well in advance of any formal process. Whether it is optimising operations, enhancing data analytics capabilities, reassessing capital structures or improving working capital management, proactive steps taken now can significantly impact future transaction outcomes.
While it's too early to declare a full market resurgence, the seeds of increased activity are certainly present. Businesses that position themselves effectively in this evolving landscape - through strategic bolt-on acquisitions, technology adoption, and operational excellence - will be best placed to capitalise on opportunities as they arise in the latter part of 2024 and beyond.
If you have any questions relating this article or would like to discuss your plans for a future transaction, please get in touch with our expert team, who will be happy to help.
Sector deal trends review for H1 2024
As we navigate through 2024, the UK M&A landscape presents a mixed picture across the various market sectors. Despite ongoing economic challenges, we are seeing evidence of resilience and even resurgence in deal activity. From capital markets to transport and logistics, each sector tells its own story of adjusting to change and embracing emerging opportunities.
Our BDO Deal Advisory sector experts share their insights on recent trends, notable transactions, and future outlooks. Whether you are an investor, business owner or industry professional, understanding these sector-specific dynamics is crucial for informed decision-making in the deals landscape.
Read on to explore all sectors or jump to the sector of your specific interest using the buttons below. Don't hesitate to reach out to our team for personalised guidance on your M&A plans.
Deal Matrix and Sector Snapshots
Discover our deal volumes across sectors and our expert analysis of the key trends in those sectors.
