The State of the Market for M&A – July 2012

An article by Peter Watson

One of the most common questions I get asked by owner managers who are considering selling their business – is whether the time is right. Market activity is undoubtedly a factor – though perhaps a less important one than the business activity!

So what is the current state of the market for Mergers and Acquisitions?

Recently released statistics from the Office of National Statistics indicate that UK company activity for the first quarter of 2012 was down on all fronts – yet the picture is undoubtedly an uneven one. Activity within the ICT (Information & Communication Technology sector) – a very relevant sector to Cambridge – appears to be holding up well – indeed we estimate that as many as half the deals in the first quarter of 2012 were in this sector.

In certain niche markets sky high valuations can still persist – such as the recent purchase by of social media start-up, GoInstant – an online meeting/collaboration tool.  The business only has 12 employees, having been set up in 2010 with c£1m funding, yet was acquired for c£47m.
Some return on investment!

So what about closer to home? Our experience is that many businesses are actually doing very well –cash balances are growing but with very little return in the way of interest. Bank lending is now available for the right (generally larger) acquisition.

Valuations have fallen from their pre-credit crunch peak but are now at median levels and we expect this to continue. The economy may be in recession, but we suspect that slow economic growth is here for a while – the new norm if you like, and we anticipate that M&A activity will continue at current levels also.

Good businesses will continue to attract buyers, and where there is competition it will help encourage more attractive valuations. Whether the time is right to go to market, or to make an acquisition, will depend upon your specific circumstances. If the time is right for you personally and your business, there will be a market.