21 Oct 2021

M&A activity post-Covid – what has changed?

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This week, investors were surprised to hear that coach operator National Express had made a £480 million takeover bid for rival Stagecoach. Whilst this was unforeseen news, this bid echoes a PLC M&A trends report which points to an increase in M&A activity in the second half of the year.

The value of domestic deals for 2021 is also already significantly higher than expected. It reached £10.6 billion in the second quarter of 2021, bolstered by deals such as National Grid’s £7.8bn acquisition of the holding company of Western Power Distribution.

So, what does this increase in activity mean for businesses?

A buoyant market
It may be an unsteady market – and perhaps a tricky one – but now might be the right time to take a risk.

With furlough ending this month and other Government support schemes, such as the Coronavirus Business Interruption Loan scheme (CBILs), now in the repayment stage, many businesses that have struggled over the past 18 months, or are starting to feel the pressure, may be looking for a way out.

On the other side of the coin, businesses that have done well during the same period are more likely to undertake acquisitions given the current number of opportunities in the market.

Indeed, both listed and unlisted companies “now appear much more prepared to deploy capital” and are pursuing strategic growth opportunities, PLC experts say.

Beware of ‘corporate zombies’
Companies’ balance sheets may look attractive, but this could be down to Government support so Investors must remain wary of increased risk.

After the largest drop in the stock market since the Wall Street crash of 1929, the unprecedented monetary and fiscal response by the UK government led the path to a swift rebound for struggling companies. Government grants and loans, such as the £43.5 billion Bounce Back Loans Scheme (BBLS), may have a knock-on effect on share valuations.

Whilst the repayment period for the BBLS has now been extended to 10 years, economists say many businesses that took on more debt with strained balance sheets might be unable to repay the loans under normal banking conditions.

Businesses interested in M&A should consider what may happen to those ‘corporate zombies’ in 12 months’ time.

Following the trends
With this in mind, what sectors are looking attractive for M&A?

Experts suggest that, outside of Technology, digital first and tech-enabled business models would be leading the way soon, followed by Pharmaceutical, Life Sciences and e-commerce businesses due to the inordinate increase in demand spawned by the pandemic.

Successful businesses looking to undertake M&A could also benefit from depressed investment prices, although some experts are saying a number of publicly listed companies are being valued “far too cheaply”, a trend that may have an impact in the SME marketplace.

Amid the optimism about the future economic outlook, purchasing, or consolidating, should be looked at with confidence and any deal should be carefully assessed. If you are looking to move forward with your M&A plans, contact one of our experienced advisers now.

Alison Bradshaw