Report from the Rainmakers Roundtable: Plenty of Opportunity – But Fear Looms in the Deal Market

The second in our series of Rainmakers roundtables focused on who provides the money to successfully close deals – and where entrepreneurs should look if they’re considering outside financing to push through an acquisition.

The discussion began with a market overview of deals over the past six months – and a look at pipelines through 2023.

Navin Prabhakar, partner at Gowling WLG, said the current funding picture was very mixed. He added: “We are working on everything from revolving credit facilities to medium-term loan programs. We have a busy pipeline through December – after that it gets a little harder to predict. »

Jane Hartley added: “We have been active on transactions, but over the past few months they have taken longer to complete. We attribute this to an ever-changing economic environment, particularly from a funding perspective. We have many conversations with business owners, but many of them are nervous about pushing the button. However, there are many people who want to do things.

“There is a lot of prep work going on for transactions that may launch early next year,” said Michelle Heptinstall of ThinCats. She added: “I agree with Jane that there is a lot of nervousness to push, but we have good visibility for the rest of the year.

Tom Horton, also of ThinCats, called the current climate “a perfect storm”, while Ant Edwards, director of corporate finance at EY, said economic uncertainty was impacting valuations.

BGF’s Aaron Baker said the amount of incoming instructions his team was getting was getting “stronger than ever.” However, he added: “We had an extremely busy year, but the medium-term visibility is a bit slower.
There are lots of opportunities, but lots of fears running through the market.

“We are busier than ever,” added Stephen Murray of YFM Equity Partners. “There are a lot of opportunities – and a lot of them certainly look interesting.”

This lack of certainty about the immediate future of the deal market contrasts sharply with the Covid period, when, despite the deep shock to the UK economy, things were at least certain, our Rainmakers said.

Baker said: “Looking back, we had two or three years of normal – now the projections are not representative of tge’s business in a normal state. Trying to undo that is very difficult.

So what are our deal professionals working on right now? Is it M&A, exits/MBO/EOT? And what are the growth or working capital issues?

For Hartley, it was a mix of the lot. She said: “Many companies want to increase their working capital and many transactions have been in progress since before the summer.”

Meanwhile, she said, there are large, owner-managed or equity-backed companies looking to continue acquiring vulnerable players struggling with inflationary pressures. She added: “There are a lot of opportunities right now – it will continue.”

Hartley said companies looking to pay for financing, and added, “Funding available over the next 18 months will become more expensive, but companies looking for cash to support their acquisition strategies are ready to bear the pain.

“On the debt market, capital is not lacking. We talk to lenders and big banks who want to put funds out there, but there’s an increased level of questioning – basically they’re getting more picky.

Prabhakar countered that not all lenders are there to lend. He said: “Some clearing banks focus on returns for the past 18 months. The money is there, but the appetite may not be in some cases.

With such a complex picture today, do entrepreneurs understand the options available to them? Is education on this key?

Horton said dealing with an unadvised client can be eye-opening. “Sellers who didn’t engage an advisor – more often than not – didn’t think about the risks involved.

“Then, of course, we advised clients who chose well and spoke with other business owners. That was one of the positive things that came out of Covid; extreme collaboration and sharing of points of view.

Murray said he advises clients to think about risk and reward, but warned: “Management teams are still stuck 6-9 months ago. This lag can be shortened if they are well advised, however.

Horton said when the rainmakers talked about ‘market scarcity’ what they really meant was high quality companies.’ He added: ‘Some companies were having trouble getting into Covid – well, now the bar is raised even higher. Are you really as good a business as you think? There has to be a willingness to accept the downsides of your business.

For Baker, it was about answering questions that weren’t getting enough answers: “Advice is really key,” he said.

So what advice would our team of crack advisors give to those looking for funds to buy a business?

Hartley said preparation was key: “Present a well thought out plan and tell the story and what you want.”

Horton added: “Start thinking: why would you buy this business and why would the sellers sell it. What makes the acquisition interesting? »

Join the culture club, Baker said: “Make sure you understand the culture of the company you’re buying. You must be aligned.

The most important thing for Heptinstall was to have a strategy and to know what the endgame is. She said, “What does it look like? What is the evolution from plan A to plan B? »

Murray warned contractors not to rush. “I like to see someone who has made a deal, but doesn’t jump at the first opportunity; consider it in a balanced way. The cultural component takes time. Someone who thinks about it correctly fills me with confidence.

Prabhakar warned, “If you’ve never gone through the deal process before and you have a junior management team, the process can be a nightmare. Organization and preparation are key.

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