M&A activity remains strong, but the outlook is unclear.
The UK’s vote to leave the EU has not yet dampened the appetite for mergers and acquisitions (M&A).
M&A activity in the UK mid-market is buoyant. JLT worked on some 40 deals during the first half of 2016 – a volume comparable with the previous two six-month periods.
Certain fundamentals are underpinning M&A activity in the UK mid-market. Bank lending remains strong, and private investors continue to see opportunities to invest and acquire companies. The private equity sector is vibrant, and there is plenty of competition.
Activity remains particularly strong in the regions, with a flurry of deals in the lead-up to the EU referendum in June, as well as new instructions in August and September. There is no evidence of a downturn in M&A activity, but future prospects are difficult to predict.
There is a notably cautious outlook over economic growth, consumer spending, inflation, and the eventual outcome of Brexit negotiations. This makes for a more challenging projection.
Following the Brexit vote, due diligence will be in high demand, and will depend on quality information.
Clients need to understand the risks in a target business, and we are often asked to advise on a broader array of risks, including cyber, intellectual property and reputational risks.
In uncertain times, there is always a flight to quality. So if you are considering an M&A, then quality of information, financials and data will be critical.
If you have a deal on the horizon, seek early advice, particularly from an insurance broker, as warranty and indemnity (W&I) insurance depends on commitment. W&I insurance is a deal enabler for private equity companies. It gives buyers confidence in what they are buying, and can help balance this with the needs of sellers and management, who will be giving the warranties.
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