Rainmakers expect busier H2 pipeline as economic uncertainty abates

News Analysis 14 March

Rainmakers expect busier H2 pipeline as economic uncertainty abates

  • Investment bankers earned USD 2.6bn in M&A fees from UK deals in 2022
  • Splurge of M&A activity could come as soon H223 to early 2024
  • Bankers continue focus on bilateral deals rather than auctions

Timing has been one of the most cited words among UK advisors polled by Mergermarket as they reassess the prospect of launching long held-off sale processes in the hopes a stabilising economic outlook.

Some bankers are now pegging hopes on H223 to early 2024 as due for “a splurge of M&A activity” in the UK. This follows what has been a difficult past 12 months or more, ranging from the war in Ukraine, to decade-high inflation and the ensuing interest rate hikes, as well as mini-budget mishaps under the brief premiership of Liz Truss. Last week's collapse of US tech bank SVB and the ensuing sale of the UK operation to the HSBC is the latest twist in the volatile market.

“Clients want to know when is the right time to launch a sale of their business,” said Richard O'Donnell, partner at Clearwater International's consumer and leisure team. “We certainly have been very cautious and advised our clients just to hold tight. Nobody wants to fail a sale process as it's a waste of everyone's time.”

Houlihan Lokey is among firms that expects to have a “very full” pipeline of accumulated mandates after many of its clients have started to appoint advisors in anticipation of a more conducive M&A environment later this year and in to 2024, said Shaun Browne, its co-head of European corporate finance.

Rainmakers are taking comfort from a range of economical and financial indicators, including a recovery from the plunge in global stock markets in Q3 last year. The FTSE 100 for example, hit an all-time high last month. Adding fervor to the environment is Bank of England’s inflation forecast of below 2% in the medium term, which could fuel greater optimism that conditions for the M&A market is brightening.

Among examples of businesses exploring options include Hawksmoor, the Graphite Capital-backed premium steakhouse chain, which is working with boutique advisor Stephens to better understand the US market, co-founder and CEO Will Beckett, as reported.

One transaction set to be completed after a year-long auction process is GL Education, a UK-based global provider of education assessment, with sponsor-owner Levine Leichtman Capital Partners having mandated Baird to offload the business then, as reported.

The timeline also coincides with the UK political calendar, with the next UK General Election expected to be held in the coming quarters. The possibility of a Labour government in power is already getting some business owners “nervous” about any potential rises in capital gains, with many hoping to seal a deal before then, said O'Donnell.

More imminently, however, is the upcoming budget this week, said Matthew Flower, a Partner in the corporate finance team at FRP Advisory , who noted that it is currently working on mandates which it is trying to close before the Spring Budget scheduled for tomorrow.

The dearth in activity last year is reflected in Dealogic data, which showed that investment bankers earned USD 2.6bn in M&A fees from clients based in the UK in 2022. This was down from the all-time high of USD 3.5bn in 2021 when government stimulus packages and low interest rates contributed to frothy fees globally. Last year represented a return to reality as central stimulus tapered, geopolitical risks and inflation captured headlines, and caution returned to the market.

Technology, financial institutions, and energy & natural resources were the top three sectors to generate M&A fees in 2022. Meanwhile, Goldman Sachs, Rothschild & Co, JPMorgan, Morgan Stanley and BofA Securities were the top-five M&A fee earning banks last year.

Deal drivers

One major deal driver in the coming quarters is non-core corporate divestments, Browne said. As corporates look to slim down and refocus on their core expertise, many CEOs are looking to divest their non-core assets, he said. These deals tend to be less price sensitive as they sometimes make up a small part of the company’s overall value, he added.

Major potential corporate divestures include Haleon [LON:HLN], a UK-based consumer health group, which is weighing the sale of its ChapStick lip balm unit in a deal that could be worth approximately USD 600m, according to media reports.

Others include Theo Mueller, the German dairy products group, which is reportedly exploring options that could include a sale or an IPO for its subsidiary Culina Group, the UK-based logistics firm that could be valued at GBP 1.5bn.

Private equity is also expected to remain a significant driver for deals later this year and in to 2024, said O'Donnell. Sponsors have for the past year or so been hoping to come to market with long-held assets, particularly consumer businesses, but were unable to launch processes owing to the challenging market conditions, he added.

On the lower mid-market, particularly businesses owned by founders, some are looking for options as they look to derisk their positions either through a partial equity sale or a full sale, said Flowers. After going through the pandemic and the ensuring volatility, many owners are now realizing that a lot of their wealth have been tied up in one place, he added.


With many processes now in a holding pattern, many sellside advisors are holding bilateral talks with a handful of potential buyers as they look to test market appetite.

Practically, market testing can mean introducing targets to potential buyers, typically to trade some 12-24 months before any formal sale processes, with an off-market sale a potential outcome from the introduction, Browne said.

Meanwhile, other advisors such as FRP are also also seeing an increasing use of dual-track mandates, with vendors looking at an M&A track, but also with a refinancing angle should its plan A option fail, or vice versa, said Flowers.

“People are having to look at the alternatives,” he said. “What we might see is a lot more is dual-track processes where M&A is a viable option, but at the same time, look at refinancing the business.”

UK sellside advisors are also looking further beyond its shores for buyers with interest in UK companies – a trend that has been noticeable in the last 18 months, Flowers said, noting that around half of its disposed businesses in 2022 went to non-UK buyers such as those from North America, European and some southeast Asian buyers. This is a significant increase from around 20% in 2021, for the boutique.

Tempering optimism

Despite the recovery in mood, some advisors are keen to temper any over optimism of their clients on topics, most particularly around valuations.

“Not everybody adjusted their valuation expectations from the halcyon days of 18-24 months ago,” said Browne, pointing to one company it had recently spoken to that was looking to raise equity based on a valuation of GBP 1.5bn which they achieved just over a year ago. Despite "looking absolutely horrified" after tempering their expectations that their valuation is likely to be lower, they went ahead with the fundraising based on a valuation closer to GBP 200m or GBP 250m, he said. 

Whilst most valuations may have come off from where they were 18 to 24 months ago, there's still some “very very racy” valuation multiples doing the rounds, he said, pointing to technology and business services among areas where valuations being achieved are “still pretty substantial”.

With economic and financial conditions looking potentially more favourable, many advisors are dusting off their pitchbooks and penning in meetings with their clients.

"None of us have control over the macro factors, but what you don't want to do, is miss out on a window of opportunity to close a transaction,” said Flowers.

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