M&A advisers optimistic about outlook for mid-market, according to Nexia International survey
A global survey of independent corporate finance firms paints a picture of relative good health for mid-market M&A deals, says Nexia International, the network of independent accounting and consulting firms.
Nexia International’s member firms say they continue to advise on a steady flow of mid-market M&A deals. Just over a third (35%) of member firms surveyed said that the volume of M&A deals on which they advised increased in the last year compared to the previous year. Another 41% said it had stayed about the same.
Firms are also relatively confident about the volume of M&A deals on which they expect to advise over the coming year. Nine out of ten firms said they expect the volume of deals to increase (38%) or remain unchanged (52%) in the next 12 months, despite the generally gloomy global economic outlook.
While most advisers are working from a relatively low base, given difficult market conditions, the research suggests that the worst slump in M&A activity in decades may be behind us.
The perennial M&A drivers of economies of scale, growing the client base, improving profitability and succession planning were cited as the key factors likely to lead to more M&A activity.
“The survey appears to confirm that there remains a steady trickle of businesses putting themselves up for sale as a result of the natural lifecycle of the family business, says Charles Simpson, head of corporate finance at UK member firm Saffery Champness.“This may be due to lack of cash, business owners wanting to retire or reaching a pivotal point in their lives, or changes in the family due to death, divorce or retirement. Succession planning remains a critical issue for many smaller privately owned businesses, which is the natural territory of many Nexia firms”, he says.
“And buyer demand looks to be slowly improving as buyers who have built up cash reserves during the good times look for higher returns and quality businesses in which to invest. The old adage that cash is king is particularly pertinent in the current environment. While still relatively thin on the ground, there are cash-rich corporate buyers, ready to make strategic purchases, including cross-border, by leveraging their own balance sheets so that finance is secured on the rest of the business rather than the target, says Simpson.”
Difficulties in raising finance and a lack of market confidence are overwhelmingly cited as the key obstacles to M&A activity next year, followed by an inability to match valuation expectations.
“Mid-market M&A has been slow to recover from a series of setbacks following the fall-out from the financial crisis in 2009/10”, says Simpson. “Potential buyers have struggled to secure debt funding for deals, as banks remain reluctant to lend, instead focusing on existing customers and rebuilding their balance sheets,” he adds.
“In addition, there has been a reluctance on the part of sellers to lower their valuations from the highs of the boom years up to 2007/08, despite deepening global economic difficulties. In contrast, buyers immediately discounted valuations, resulting in a mis-match which has kept deal flow static,” says Simpson.
There are some signs of healthier multiples, butfor the volume of M&A deals being done to rise significantly, ultimately sellers will need to reassess their value expectations in line with the ‘new reality’. Simpson says “there are now signs that sellers realise that multiples are not going to rise quickly and are therefore more accepting of the valuations achievable in today’s market.”
Other key survey findings
Mergers and trade sales, particularly private-equity-backed deals, are expected to be the most active types of transaction, with leveraged management buy-outs or buy-ins suffering as a result of a lack of debt finance.
Manufacturing is expected to be the most active sector for M&A deals in the next 12 months globally, followed by information and communications technology and business services.
Where firms anticipate growth in M&A activity beyond their own region, Asia-Pacific, in particular South East Asia and China, is expected to be the most active for cross-border deal growth, followed by Western Europe, North America and Central and Eastern Europe.
About the survey
Nexia International’s annual M&A survey of member firms was conducted at the end of 2011. Participants were senior decision-makers within the corporate finance departments of 66 member firms from 36 countries around the world.
The survey measured the involvement of Nexia member firms in M&A transactions in a lead advisory or transaction support role.
Nexia International is home to a wide range of firms, but the majority of firms in the survey (71%) have fewer than ten partners or directors.
Just over half (51%) of the Nexia firms in the survey advised on M&A deals with a total value of up to US$5m last year. However, 22% of the firms surveyed advised on deals with a total value of US$10m–50m and a further 22% on deals totalling more than US$50m.
For a copy of the report, please click here.
For further information and insight into the survey, contact:
Tel: +44 020 7841 4176
Steve Smith or Layisha Laypang
Tel: 020 7096 5026
Note to editors:
Nexia International is a leading global network of independent accounting and consulting firms with more than 500 offices in over 100 countries, providing a comprehensive portfolio of assurance, tax and advisory services.
With a substantial presence in the world’s major financial and economic centres, Nexia is strategically positioned to serve the diverse international requirements of our clients, ranging from globally listed entities and international subsidiaries, to owner-managed businesses and high-net-worth individuals.
Nexia member firms had combined global fee income of US$2.33bn in 2011 and Nexia was ranked the 11th largest international network by revenue in the latest International Accounting Bulletin World Survey (2011).