Wednesday, 12 July 2017
Overall the Mergers and Acquisitions (M&A) market is still very active within the SME space, and this trend looks set to continue even with Brexit progressing in the background. Deal activity in some sectors has seen a slight slowdown in volume compared to previous years, but those deals taking place are of a higher quality.
One sector that stands out in particular is healthcare, the sector is moving at a slower pace but buyer appetite is still very strong. A once incredibly active market with acquisitions, even in the last 12 months, this sector has seen a slight change with buyers taking a more sophisticated approach to acquisitions, looking for the larger entities. Heavy consolidation over the past 10 years will no doubt have had an impact, although charge rate cuts and increased wage bills have played their part. That said, this is a market that will continue to grow, owing to an increasingly aging population, and the continued pressures and demands on the NHS, but also pushing forward the more complex care and specialist care providers. This sector looks set to continue with its consolidation, just at a slower pace, with buyer appetite still very strong.
In contrast, a sector on the radar for increased activity is the haulage industry. This sector has had its difficulties over the years, seeing some significant players fall by the wayside. It has been affected by a large competition pool, low margins, lack of drivers and, until recently, oil prices reaching an all-time high. Many of these factors have gradually eased up, and where the strong survived and stuck out the recession, they are now picking up at a significant pace. Over a tough period it often thins out the herd, leaving only the healthiest, providing a platform of some decent size transactions for the M&A market.
Another market showing increased activity is the information technology industry. Having had time to mature, with a few milestone transactions, this is a sector which, on the whole, has some real gems that, when ready to consider an exit plan, will add value to the M&A market. A sustainable market that is continually growing through innovation and public demand, definitely one to keep an eye on.
Insurance companies, pharmacies and dental practices continue to see some impressive valuations, particularly dental, which has previously been heavily consolidated by large conglomerates. Dental valuations have since been driven up further by the bank of “mum and dad” supporting their sons or daughters newly qualified to acquire a lifestyle business for them. This could potentially cause a knock-on effect of unrealistic valuation expectations for the sector.
One other hot sector is the energy industry, particularly energy firms under the government Energy Company Obligation (ECO) scheme. It has been around for a few years now, offering domestic and commercial properties ways of reducing their carbon footprint. There is still a quota on the big six energy providers to satisfy on an annual basis, which they have been reaching via sub contract firms installing smart metering and insulation solutions. This is a small sector in terms of company numbers, but with big spending power, when one does come to the market it receives a strong level of interest. This is a fast-paced sector though, with government initiatives changing, which could have a direct impact on the sustainability of the sector.