With financial markets in turmoil, the M&A market may appear to be in dire straits. From Lehmans to Merrills, the Masters of the Universe are no longer flying so high, but what does this mean for mere mortals?
Private equity houses continue to create significant activity. While they may steer clear of certain sectors, resilient companies with strong cash flow or long-term contracts remain attractive. With private equity no longer outbidding trade, corporates have once again become the primary acquirer and we expect to see more strategic purchases. 2008 has seen an international trend in mid-market transactions, reflecting a weak pound and the flow of money into the UK from the developing world and Middle East. The result is more acquisition activity.
The recent slump in debt financing has seen vendors' price expectations become more realistic as it becomes clear there is no quick fix for current market uncertainty. This provides the opportunity for buyers to re-enter the market at more attractive prices. In addition, the certainties of death, divorce and retirement (succession planning) will ensure a flow of privately held businesses for sale over the medium term.
We believe these factors will contribute to a marginal improvement in mid-market M&A activity over the next 9 to 12 months as the market adjusts, but acquirers will remain highly selective. However, quality businesses in resilient sectors will continue to be of interest to trade, private equity and international buyers.
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